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Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Nestlé Nigeria Plc
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Contents
Page
Directors and Other Corporate Information 1
Financial Highlights 2
Directors’ Report 3
Statement of Directors’ Responsibilities 13
Audit Committee Report 14
Independent Auditor's Report 15
Statement of Profit or loss and Comprehensive Income 20
Statement of Financial Position 21
Statement of Changes in Equity 22
Statement of Cash Flows 23
Notes to the Financial Statements 24
Other National Disclosures 92
Five Year Financial Summary 94
Corporate information
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Board of Directors: Mr. David Ifezulike Chairman
Mr. Mauricio Alarcon (Mexican) Managing Director/Chief Executive Officer
Mr. Ricardo Chavez (Mexican) Non-Executive Director
Mr. Kais Marzouki (German) Non-Executive Director (Resigned on 30/6/2018)
Mr. Gbenga Oyebode Independent Non-Executive Director
Mrs. Ndidi Okonkwo Nwuneli Independent Non-Executive Director
Mr. Jagdish Singla (Indian) Finance & Control Director (Appointed with effect
from 1/1/2018)
Mr. Remy Ejel (French) Non-Executive Director (Appointed with effect from 1
July 2018)
Company Secretary/
Legal Adviser Mr. Bode Ayeku
Registered Office: 22-24, Industrial Avenue
Ilupeju, Lagos
Tel: 01 – 2798184, 2798188, 2790707
Registrars: Greenwich Registrars & Data Solutions Limited
274 Murtala Muhammed Way
Alagomeji, Yaba, Lagos
Tel: 01- 5803369, 5451399, 5803367
Independent Auditors: Deloitte & Touche
Civic Towers
Plot GA1, Ozumba Mbadiwe Avenue
Victoria Island, Lagos Nigeria
Tel: +234(1)9041700
Members of the Mr. Matthew Akinlade Chairman
Audit Committee Alhaji Kazeem Owonikoko Bello Shareholders' Representative
Mr. Christopher Nwaguru Shareholders' Representative
Mrs Ndidi Okonkwo Nwuneli Directors' Representative
Mr. Ricardo Chavez (Mexican) Directors' Representative
Mr. Gbenga Oyebode Directors' Representative
1
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Financial Highlights
In thousands of naira 2018 2017 Increase/
(decrease) %
Revenue 266,274,621 244,151,411 9%
Profit before income tax 59,750,846 46,828,682 28%
Profit for the year 43,008,026 33,723,730 28%
Declared dividend* 37,651,172 19,816,406 90%
Share capital 396,328 396,328 0%
Total equity 50,220,486 44,878,177 12%
Data per 50k share
Basic earnings N54.26 N42.55
Declared dividend N47.50 N25.00
Net assets N63.36 N56.62
Dividend per 50k share in respect of
current year results only
Interim dividend declared N20.00 N15.00
Final dividend proposed** N38.50 N27.50
Stock exchange quotation at 31 December
in Naira per share 1,485.00 1,555.99 -5%
Number of shares issued (‘000) 792,656 792,656 -
Market capitalisation at 31 December (N: million) 1,177,095 1,233,365 -5%
Stock Exchange Information
* Declared dividend represents the interim dividend declared during the year (N20.00) and final dividend
proposed for the preceding year but declared during the current year.
** The directors proposed a final dividend of N38.50 (N34.20 from the profit for the year ended 31
December 2018 and N4.30 from the after tax profit for the year ended 31 December, 2009) (2017:N27.50)
per share on the issued share capital of 792,656,252 (2017:792,656,252) ordinary shares of 50k each,
subject to approval by the shareholders at the Annual General Meeting.
2
Directors' report
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Report
1 Financial Statements
2 Principal Activities
3 Operating Results
The following is a summary of the Company’s operating results:
2018 2017
N'000 N'000
Revenue 266,274,621 244,151,411
Results from operating activities 60,640,731 55,698,373
Profit before income tax 59,750,846 46,828,682
Profit for the year 43,008,026 33,723,730
Total comprehensive income for the year 43,008,026 33,723,730
4 Dividend
5 Directors and Their Interests
Appointed/
(Resigned) 2018 2017
Mr. David Ifezulike - Chairman 56,255 56,255
Mr. Mauricio Alarcon (Mexican) - MD/CEO Nil Nil
Mr. Jagdish Singla (Indian) 1/1/2018 Nil Nil
Mr. Remy Ejel (French) 1/7/2018 Nil Nil
Mr. Kais Marzouki (German) (30/6/2018) Nil Nil
Mr. Ricardo Chavez (Mexican) Nil Nil
Mr. Gbenga Oyebode Nil Nil
Mrs. Ndidi Okonkwo Nwuneli Nil Nil
(b)
The directors present their annual report on the affairs of Nestlé Nigeria Plc ("the Company"), together with
the financial statements and independent auditor's report for the year ended 31 December 2018.
The principal activities of the Company continue to be the manufacturing, marketing and distribution of
food products including purified water throughout the country. The Company also exports some of its
products to other countries within and outside Africa.
The Directors recommend the payment of a final dividend of N38.50 (2017: N27.50) per share having earlier
declared an interim dividend of N20.00 (2017: N15:00 ((N13.00 and N2.00 from the balance of the
pioneer profits as at 31 December 2015 and retained earnings as at 31 December 2015 respectively)) on the
issued share capital of 792,656,252 (2017:792,656,252) ordinary shares of 50k each. The proposed final
dividend is composed of N34.20 from the profit for the year ended 31 December, 2018 and N4.30 from the
after tax profit for the year ended 31 December, 2009. If the proposed dividend of N38.50 is approved by
the shareholders, it will be subject to deduction of withholding tax at the applicable rate.
(a) The directors who served during the year and their interests in the shares of the Company at the year
end were as follows:
Interest in the Ordinary Shares of
the Company
Mr. Gbenga Oyebode, was the Non-Executive Chairman of Access Bank Plc, one of the Company's
bankers and a Non-Executive Director of MTN Nigeria Communications Limited (MTN), one of the
telecommunication service providers of the Company. He is the Chairman of CFAO Nigeria Plc, one of
our vehicle suppliers. In accordance with Section 277 of the Companies and Allied Matters Act of
Nigeria, he has notified the Company of his position with Access Bank Plc , MTN and CFAO Nigeria Plc.
3
Directors' report
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Report
(c)
6 Records of Directors’ Attendance
7 Analysis of Shareholdings
Number of Number of
shareholders % shares %
1 - 5,000 25,511 88.69 21,302,538 2.69
5,001 - 10,000 1,599 5.56 10,954,998 1.38
10,001 - 50,000 1,303 4.53 26,044,344 3.29
50,001 - 100,000 153 0.53 10,350,212 1.31
100,001 - 500,000 135 0.47 30,524,135 3.85
500,001 - 1,000,000 24 0.08 17,830,676 2.25
1,000,001 - 5,000,000 27 0.09 58,461,812 7.38
5,000,001 10,000,000 7 0.02 46,502,304 5.87
10,000,001 and above 3 0.01 46,125,774 5.82
28,762 99.997 268,096,793 33.82
Nestlé S.A, Switzerland * 1 0.003 524,559,457 66.18
28,763 100 792,656,250 100
*
8 Property, plant and equipment
9 Donations
2018
N’000
Nestle for Healthy Kids school rehabilitation project in Ogun State 13,520
Nestle for Healthy Kids School Rehabilitation project – Abaji 10,645
Community water projects in Flowergate 9,800
33,965
The value of gifts and donations made by the Company during the year amounted to N33,965,000 (2017:
N2,088,000 ) and analysed as follows:
Information relating to changes in property, plant and equipment is disclosed in Note 15 to the financial
statements.
No share options were granted to the directors by Nestlé Nigeria Plc. However, Nestlé S. A., the
ultimate parent company has a share based payment scheme offered to certain key management
personnel including certain directors of the Company. Information relating to this share based
payment scheme is disclosed in Note 24(a)(iv) to the financial statements.
Further to the provisions of Section 258(2) of the Companies and Allied Matters Act of Nigeria, the Record of
Directors’ Attendance at Board Meetings held in 2018 is available at the Annual General Meeting for
inspection.
Apart from Nestlé S.A, Switzerland, with 524,559,457 ordinary shares (representing 66.18%) and
Stanbic IBTC Nominees Limited with 8.37%, no other shareholder held 5% or more of the paid-up
capital of the Company as at 31 December 2018.
4
Directors' report
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Report
10 Nestlé Nigeria Trust (CPFA) Limited (“NNTL”)
11 Local Sourcing of Raw Materials
12 Major Distributors
13 Suppliers
14 General Licence Agreement
15 Acquisition of Own Shares
The Company did not purchase any of its own shares during the year.
16 Employment and Employees
(a) Employment of physically challenged persons:
In compliance with Section 38(2) of the Companies and Allied Matters Act of Nigeria, the Company did not
make any donation or gift to any political party, political association or for any political purpose during the
year.
In addition to the above mentioned donations, the Company continued with its strong focus on creating
shared values initiatives. Nestlé Nigeria invested in technical and employability skills building for youth and
in building the capacity of farmers to increase their productivity and income. The Company also worked
alongside partners to improve the household nutrition of local farmers through trainings in grain quality
improvement and food transformation/preservation techniques
Nestlé Nigeria Trust (CPFA) Limited (‘NNTL’) previously called Nestlé Nigeria Provident Fund Limited, was
incorporated by the Company and is a duly registered Closed Pension Fund Administrator whose sole
activity is the administration of the pension and defined contribution gratuity scheme for both employees
and former employees of Nestlé Nigeria Plc.
On a continuing basis, the Company explores the use of local raw materials in its production processes and
has successfully introduced the use of locally produced items such as soya bean, maize, cocoa, palm olein
and sorghum in a number of its products.
The Company's products are distributed through various distributors that are spread across the whole
country as stated on page xxxx of the Annual report and financial statements.
The Company procures all of its raw materials on a commercial basis from overseas and local suppliers.
Amongst the overseas suppliers are companies in the Nestlé Group.
The Company has a general licence agreement with Societe des Produits Nestlé S.A., Nestec S.A. and Nestlé
S.A., all based in Switzerland. Under the agreement, technological, scientific and professional assistance are
provided for the manufacture, marketing, quality control and packaging of the Company’s products,
development of new products and training of personnel abroad. Access is also provided to the use of
patents, brands, inventions and know-how.
The Company obtained the approval of the National Office for Technology Acquisition and Promotion
(NOTAP) with certificate No. CR 006577 for the remittance of General Licence Fees to Societe des Produits
Nestlé S.A., Nestec S.A. and Nestlé S.A. The approval is for a period of three (3) years with effect from 1st
January 2018 to 31st December 2020.
It is the policy of the Company that there is no discrimination in considering applications for
employment including those of physically challenged persons. The Company had 18 (2017: 18)
physically challenged persons in its employment as at 31 December 2018.
5
Directors' report
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Report
(b) Health and safety at work and welfare of employees:
( c) Employees involvement and training:
The Company places considerable value on the involvement of its employees and has continued the
practice of keeping them informed on matters affecting them as employees and on various factors
affecting the performance of the Company. Employee representatives are consulted regularly on a
wide range of matters affecting their current and future interests.
Circulars and newsletters on significant corporate issues are published. Regular briefing sessions are
also held at corporate and operational levels to enhance exchange of information.
Management, professional and technical expertise are the Company’s major assets. The Company
continues to invest in developing such skills. The Company has in-house training facilities,
complemented, when and where necessary, with external and overseas training for its employees.
This has broadened opportunities for career development within the organisation.
All employees whether physically challenged or not are given equal opportunities to develop their
expertise and knowledge and qualify for promotion in furtherance of their careers. In the event of
members of staff becoming physically challenged, every effort is made to ensure that their
employment with the Company continues and that appropriate training is arranged. It is the policy of
the Company that training, career development and promotion of physically challenged persons
should, as far as possible, be identical with that of other employees.
The Company invests its resources to ensure that hygiene on its premises is of the highest standard. In
this regard, the Company has, on three occasions, won the Manufacturers’ Association of Nigeria’s
award for the best kept factory and on three occasions won the Federal Environmental Protection
Agency’s environmental performance award as the most environment-friendly company in Nigeria.
The work environment is kept conducive and as safe as possible.
The Company operates its own clinics which provide quick health care to its employees. In pursuit of
efforts to improve health infrastructure and enhance the quality of care for the employees, the
company has built a new ultra modern clinic at Agbara factory. The new clinic which is fully equipped
with state-of-the-art medical facilities consists of three consulting rooms, one pharmacy, one
laboratory and two observation rooms, amongst others.
The modernization of the medical facilities by the Company is in line with Nestlé Corporate Business
principles of promoting safe and healthy work environment for the employee.
The Company caters for the recreational needs of its employees by providing them with a wellness
center and other games facilities such as Table Tennis, Draughts, etc. Lunch is provided free to staff in
the Company’s canteen.
6
Directors' report
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Report
17 Remuneration Committee
18 Audit Committee
Mr. Matthew Akinlade (Chairman) Shareholders’ Representative
Alhaji Kazeem Owonikoko Bello Shareholders’ Representative
Mr. Christopher Nwaguru Shareholders’ Representative
Mrs. Ndidi Okonkwo Nwuneli Directors’ Representative
Mr. Gbenga Oyebode Directors’ Representative
Mr. Ricardo Chavez Directors’ Representative
19 Risk Management Committee
The remuneration committee, which consists of three directors namely Mr. David Ifezulike, Mr. Kais
Marzouki (resigned 30/6/2018) , Mr. Remy Ejel (was appointed on 29/10/2018) and Mr. Ricardo Chavez
were appointed by the Board of Directors to submit recommendations on the salaries of executive directors
to the Board for approval.
In accordance with section 359(4) of the Companies and Allied Matters Act of Nigeria, members of the audit
committee of the Company were elected at the Annual General Meeting held on 22 May 2018. Members
that served on the audit committee during the year comprise:
In addition, we have graduated three(3) sets of technical students from Nestle Technical Training
Center (NTTC). The multi-skill engineering training runs for a period of 18 months.The total number of
those who have so far completed the programme till date is forty-six (46). The cost of the training was
fully paid by our Company. The success of the NTCC in our Agbara factory has spurred us on to
replicate and adapt the NTCC model in our Nestle Waters factory in Abaji.
The content of the course was based on the syllabus of City and Guilds of London Technicians
Examinations Certificates in Engineering, one of the world’s leading vocational education
organizations. To empower the trainees with relevant skills, the top five (5) students in the scheme
were taken to Switzerland for further training within the Group’s factories. In order to reduce
unemployment, eight (8) of the thirteen (13) graduates from the first batch, thirteen (13) graduates
from the second batch and all the twenty (20) graduates from the third batch were given employment
by our Company. The other graduates from the first and second batch are in full time employment
with other organizations.
The current fourth batch of twenty students comprising eighteen(18) males and two(2) females were
admitted into the training school on 10 July ,2017 for another 18 months programme. They have
completed City and Guilds of London Levels 3 ,4 and 5 examinations as at December 2018 and are
currently undergoing a 3 month practical exposure within the factory departments .
This NTTC program contributes to the increase in the overall technology know-how in Nigeria and the
pool of employable technical persons as the students also act as technology ambassadors after they
have completed their training programme.
The Committee is to assist the Board in its oversight of the risk profile, risk management framework and the
risk reward strategy. The Committee is to carry out periodic review of changes in the economic and business
environment, including emerging trends and other factors relevant to the Company’s risk profile. Messrs.
Oyebode, Chavez and Singla served on the committee.
7
Directors' report
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Report
20 Effectiveness of Internal Control System
21 Disclosures
a) Borrowings and Maturity Dates
b) Risk Management and Compliance System
The Company has a structured Risk Management process in place and undertakes at least annually a
thorough Risk Assessment covering all aspects of the business. The Risk Assessment is based on the
two criteria “Business Impact” and "Likelihood of Occurrence”. For every identified Business risk,
mitigating measures are implemented by the Company.
The Board is responsible for maintaining a sound system of internal control to safeguard shareholders’
investment and the assets of the Company. The system of internal control is to provide reasonable
assurance against material misstatement, prevent and detect fraud and other irregularities.
There is an effective internal control and audit function within the Company which gives reasonable
assurance against any material misstatement or loss. The responsibilities include oversight functions of
internal audit and control risk assessment and compliance, continuity and contingency planning, and
formalisation and improvement of the Company’s business processes.
The details of the borrowings and maturity dates are stated in Note 25 to the financial statements.
The directors are responsible for the total process of risk management as well as expressing their
opinion on the effectiveness of the process. The risk management framework is integrated into the
day-to-day operations of the business and provides guidelines and standards for administering the
acceptance and on-going management of key risks such as operational, reputational, financial, market,
technology and compliance risk. The directors are of the view that effective internal audit function
exists in the Company and that risk management control and compliance system are operating
efficiently and effectively in all respects.
8
Directors' report
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
c) Sustainability Initiatives
d) Related Party Transactions
22 Report on Social, Ethical, Safety, Health and Environmental Policies and Practices
Corporate Business Principles
Human Rights & Labour
Practices
1 2 3 4 5 6 7 8 9 10
Nutrition, Health
and Wellness
Quality assurance
and product
safety
Consumer
Communication
Human Rights & Labour
Practices in our business
activities
Leadership and
personal
responsibility
Safety and health
at work
Suppliers and
Customers
relations
Agriculture and
rural
development
Environmental
sustainabilityWater
These financial statements are presented in Naira, which is the Company’s functional currency. All financial information presented in Naira has been rounded to the nearest thousand except where otherwise indicated.
(a) Nutrition, Health and Wellness
(b) Quality Assurance and Product Safety
(c) Consumer Communication
(d) Human Rights in Our Business Activities
We encourage Health and Wellness of our employees via Work-Life Balance, provision of gym and other recreational facilities on our premises, provision of baby room, extended maternity leave
that is not annual leave consuming and paternity leave.
Everywhere in the world, the Nestlé name guarantees to the consumer that the product is safe and of high standard.
We are committed to responsible, reliable consumer communication that empowers consumers to exercise their right to informed choice and promotes healthier diets. We respect consumer
privacy.
We fully support the United Nations Global Compact’s (UNGC) guiding principles on human rights and labour and aim to provide an example of good human rights and labour practices
throughout our business activities.
The Company pays adequate attention to the interest of its stakeholders such as its employees, host community, the consumers and the general public. Also, the Company is
sensitive to Nigerian’s social and cultural diversity and promotes as much as possible national interests as well as national ethos and values without compromising global
aspirations where applicable. The Company has a culture of integrity and zero tolerance to corruption and corrupt practices.
The Company has contractual relationship with related companies in the ordinary course of business. The details of the outstanding amounts arising from related party
transactions are stated in Notes 22,25,27,29 and 34 to the financial statements. In addition, the Company (and other operating companies of Nestlé in Central and West
Africa) executed a Shared Services Agreement with Nestlé Central and West Africa Limited. The purpose of the agreement is to ensure the provision of common operational
shared services to all members of the Nestlé Group of companies operating within the Central and West Africa Region, which each member company had previously provided
to itself on standalone basis with the attendant duplication of functions, resources and costs. The allocation of the costs to each company is based on Activity Based Costing.
Nestlé is a principle-based company, the Nestlé Corporate Business Principles (NCBP) form the foundation of all we do. NCBP consists of ten principles these are:
Consumers Our People Suppliers and Customers The Environment
9
Directors' report
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
(e) Leadership and Personal Responsibility
(f) Safety and Health at Work
(g) Supplier and Customer Relations
We require our suppliers, agents, subcontractors and their employees to demonstrate honesty, integrity
and fairness, and to adhere to our non-negotiable standards. In the same way, we are committed to our
own customers.
Our success is based on our people. We treat each other with respect and dignity and expect everyone
to promote a sense of personal responsibility. We recruit competent and motivated people who respect
our values. We provide equal opportunities for our employees’ development and advancement. We
protect our employees’ privacy and do not tolerate any form of harassment or discrimination.
The long-term success of the Company depends on its capacity to attract, retain and develop employees
able to ensure its growth on a continuing basis. We provide equal opportunity in our resourcing drive.
The Nestlé policy is to hire staff with personal attitudes and professional skills enabling them to develop
a long-term relationship with the Company.
We are committed to preventing accidents, injuries and illness related to work, and to protect
employees, contractors and others involved along the value chain. We recognise and require that
everyone plays an active role in providing a safe and healthy environment, and promote awareness and
knowledge of safety and health to employees, contractors and other people related to or impacted by
our business activities by setting high standards.
We have Clinics in our Factories, Distribution Centre and Head Office. The Clinics at the factories operate
24 hours service. Also we have Hospitals listed on retainer basis with the company for our employees
and their family use. Efforts are being made by the Management and the Safety, Health and
Environment Officers at the various sites to avoid industrial accidents through increased training on
safety to both staff and contractors. The target of the Company is to ensure that there is no major
accident.
We provide basic HIV/AIDS training to our employees. Also, we provide training and basic information to
staff on prevention and treatment of serious diseases. On periodic basis, we invite medical experts and
health institutions to make available free screening exercise to enable employees know their status in
respect of serious diseases and provide the treatment required. We do not discriminate against or
disengage any employee on the basis of his or her HIV/AIDS status. The Company makes the above
facilities available to staff through the retained clinics.
10
Directors' report
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
(h) Agriculture and rural development
(i) Environmental sustainability
(j) Water
(k) Number, diversity, training initiatives and development of employees
(l) Bribery and corruption
We contribute to improvements in agricultural production, the social and economic status of farmers,
rural communities and in production systems to make them more environmentally sustainable.
We commit ourselves to environmentally sustainable business practices. At all stages of the product life
cycle, we strive to use natural resources efficiently, favour the use of sustainably-managed renewable
resources and target zero waste.
We invest continuously to improve our environmental performance. The Nestlé Policy on Environmental
Sustainability incorporates the United Nations Global Compact’s three guiding principles on environment
(Principle 7 on support for precautionary approach to environmental challenges; Principle 8 on the need
to undertake initiatives to promote environmental responsibility and Principle 9 on the need to
encourage the development and diffusion of environmentally friendly technologies). Our four priority
areas are: water, agricultural raw materials, manufacturing and distribution of our products and
packaging. We implement our policy through the Nestlé Environmental Management System. We
believe that environmental performance is a shared responsibility and requires the cooperation of all
parts of society. We are determined to always provide leadership within our sphere of influence.
We are committed to the sustainable use of water and continuous improvement in water management.
We recognise that the world faces a growing water challenge and that responsible management of the
world’s resources by all water users is an absolute necessity.
As at 31 December 2018, the staff strength of the Company was 2187 (2017: 2,201). Our employees are
made up of male and female from different parts of the country. Every employee is given equal
opportunity for promotion purely on the basis of merit. We provide both experienced based learning
and classroom trainings in Nigeria and overseas. Presently, we have 18 (2017: 22) of our staff on
overseas’ assignments in Ghana, Cote D’ Ivoire, Switzerland, Senegal, Dubai, South Africa, Indonesia and
Germany in order to give them the required exposure to enable them take up higher responsibilities.
We condemn any form of bribery and corruption. Our employees must never, directly or through
intermediaries, offer or promise any personal or improper financial or other advantage in order to
obtain or retain a business or other advantage from a third party, whether public or private. Nor must
they accept any such advantage in return for any preferential treatment of a third party. Moreover,
employees must refrain from any activity or behavior that could give rise to the appearance or suspicion
of such conduct or the attempt thereof.
11
Directors' report
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
23 Insider Trading
24 Notable Awards received in 2018
The Company received other awards in 2018, including:
SERAS Awards – 2018 Best Company in Stakeholder Engagement.
25 Independent Auditors
Dated this 4th day of March 2019.
BY ORDER OF THE BOARD
Bode AyekuCompany Secretary/Legal Adviser
FRC/2012/NBA/0000000063722-24, Industrial AvenueIlupeju,Lagos.
The directors of the Company and senior employees who are in possession of price sensitive information
are prohibited from dealing with the shares of the Company in accordance with the provisions of the
Investments & Securities Act 2007 and the Listing Rules of the Nigerian Stock Exchange. As required by
law, the shares held by directors are disclosed in the annual report. Our Company has securities trading
policy applicable and circulated to directors, insiders, external advisers and all employees that may at
any time possess any inside or material information about our Company. The securities trading policy is
also available on the website of the Company.
Our Company has adopted a code of conduct regarding securities transaction by the directors on terms
no less exacting than the required standard set out in the Listing Rules of the Nigerian Stock Exchange.
The Company has made specific enquiry of all directors whether they have complied with the required
standard set out in the listing rules and the Company’s code of conduct regarding securities transactions
by directors and the Company is not aware of any non-compliance.
The firm of Deloitte and Touche have indicated their willingness to continue in office as auditors in
accordance with Section 357 (2) of the Companies and Allied Matters Allied Act CAP C20 Laws of the
Federation of Nigeria, 2004.
BusinessDay top 25 CEOs awards - Our MD, Mauricio Alarcon was honored as one of the top 25 CEOs in
Nigeria.
Capital Market Correspondents Association of Nigeria (CAMCAN) Awards - Best Returns on Investment
(Consumer Goods Sector) and 2018 Overall Best Returns on Investment.
Performance Earnings and Returns Leadership awards (PEARL) Awards - 2018 Returns on Equity, and
2018 Good Corporate Governance.
Institute of Directors Awards – 2018 Good Corporate Governance Awards.
As in previous years, Nestlé Nigeria distinguished itself in 2018 as best in class amongst its peers,
receiving multiple awards for Best Corporate Governance. The recognitions came from the Performance
Earnings and Returns Leadership (PEARL) Awards and the Institute of Directors (IOD) Awards.
12
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' an8 Auditor's Reports
• properly selecting and applying accounting policies;
•
•
• making an assessment of the Company's ability to continue as a going concern.
The Directors are responsible for:
•
•
•
•
• preventing and detecting fraud and other irregularities.
Going Concern:
SIGNED ON BEHALF OF THE BOARD OF DIRECTORS BY:
______________________________________________________________________________________________________
David Ifezulike Mauricio Alarcon Jagdish Singla
(Chairman) (Managing Director) (Finance & Control Director)
FRC/2013/NIM/00000003355 FRC/2017/NIM/00000016043 FRC/2018/ICAN/00000018560
4th March 2019 4th March 2019 4th March 2019
taking such steps as are reasonably available to them to safeguard the assets of the Company; and
The Directors have made an assessment of the Company’s ability to continue as a going concern and have no
reason to believe the Company will not remain a going concern in the year ahead.
The financial statements of the Company for the year ended 31 December 2018 were approved by directors on
4th March, 2019
Statement of Directors’ Responsibilities
For the preparation and approval of the Financial Statements
The Directors of Nestlé Nigeria Plc are responsible for the preparation of the financial statements that give a true
and fair view of the financial position of the Company as at 31 December 2018, and the results of its operations,
cash flows and changes in equity for the year ended, in compliance with International Financial Reporting
Standards ("IFRS") and in the manner required by the Companies and Allied Matters Act of Nigeria, the Financial
Reporting Council of Nigeria Act, 2011.
In preparing the financial statements, the Directors are responsible for:
presenting information, including accounting policies, in a manner that provides relevant, reliable,
comparable and understandable information;
providing additional disclosures when compliance with the specific requirements in IFRSs are insufficient to
enable users to understand the impact of particular transactions, other events and conditions on the
Company's financial position and financial performance; and
designing, implementing and maintaining an effective and sound system of internal controls throughout the
Company;
maintaining adequate accounting records that are sufficient to show and explain the Company's transactions
and disclose with reasonable accuracy at any time the financial position of the Company, and which enable
them to ensure that the financial statements of the Company comply with IFRS;
maintaining statutory accounting records in compliance with the legislation of Nigeria and IFRS;
13
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
14
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Statement of Profit or loss and Comprehensive Income
In thousands of naira
Note 2018 2017
Revenue 9 266,274,621 244,151,411
Cost of sales 11(b) (152,354,445) (143,280,260)
Gross Profit 113,920,176 100,871,151
Marketing and distribution expenses 11(b) (43,489,890) (35,157,152)
Administrative expenses 11(b) (9,789,555) (10,015,626)
Results from operating activities 60,640,731 55,698,373
Finance income 1,716,889 6,239,371
Finance costs (2,606,774) (15,109,062)
Net finance cost 10 (889,885) (8,869,691)
Profit before income tax 11 59,750,846 46,828,682
Income tax expense 13(a) (16,742,820) (13,104,952)
Profit for the year 43,008,026 33,723,730
Other comprehensive income - -
Other comprehensive income for the year - -
Total comprehensive income for the year 43,008,026 33,723,730
Profit for the year is attributable to:
Owners of the company 43,008,026 33,723,730
Total comprehensive income for the year is attributable to:
Owners of the company 43,008,026 33,723,730
Earnings per share N N
Basic earnings per share 14 (a)54.26 42.55
Diluted earnings per share 14 (b) 54.26 42.55
The accompanying notes to the financial statements and other National disclosures form an integral part of
these financial statements.
20
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Statement of Financial Position
In thousands of naira
Note 2018 2017
Assets
Property, plant and equipment 15 73,365,523 72,377,943
Long term receivables 17 2,237,105 1,921,232
Long Term Prepayments 18 3,997,477 234,170
Total non-current assets 79,600,105 74,533,345
Inventories 20 23,124,020 23,910,303
Right of return assets 21 351,995 -
Trade and other receivables 22 42,175,062 31,430,450
Contract Assets 9.2 93,179 -
Prepayments 18 1,228,025 1,791,176
Cash and cash equivalents 23 15,762,036 15,138,854
Total current assets 82,734,317 72,270,783
Total assets 162,334,422 146,804,128
Equity
Share capital 24 (a)(ii) 396,328 396,328
Share premium 24 (a)(iii) 32,262 32,262
Share based payment reserve 24 (a)(iv) 154,788 147,236
Retained earnings 49,637,108 44,302,351
Total Equity 50,220,486 44,878,177
Liabilities
Loans and borrowings 25 5,921,494 9,564,664
Employee benefits 26 2,700,673 2,275,921
Deferred tax liabilities 19 11,374,268 10,404,871
Total non- current liabilities 19,996,435 22,245,456
Trade and other payables 29 60,384,454 45,668,363
Contract liabilities 30 3,858,793 3,387,261
Refund liabilities 21 615,211 -
Bank Overdraft 23 1,393,678 3,714,087
Current tax liabilities 13(b) 23,629,987 15,098,670
Loans and borrowings 25 1,026,458 10,913,246
Provisions 28 1,208,920 898,868
Total current liabilities 92,117,501 79,680,495
Total liabilities 112,113,936 101,925,951
Total equity and liabilities 162,334,422 146,804,128
SIGNED ON BEHALF OF THE BOARD OF DIRECTORS BY:
___________________________________ ) David Ifezulike
___________________________________ ) (Chairman)
___________________________________ ) FRC/2013/NIM/00000003355
___________________________________ ) Dharnesh GordhonMauricio Alarcon
___________________________________ ) (Managing Director)___________________________________ ) FRC/2017/NIM/00000016043
___________________________________ ) Syed Saiful IslamJagdish Singla
(Finance & Control Director)(Finance & Control Director)
FRC/2015/ANAN/00000013195FRC/2018/ICAN/00000018560
The accompanying notes to the financial statements and other National disclosures form an integral part of these
financial statements.
21
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Statement of Changes in Equity
Attributable to equity holders of the company
In thousands of naira Note Share capital Share Share based Retained Total equity
premium payment reserve earnings
Balance as at 31 December 2017 396,328 32,262 147,236 44,302,351 44,878,177
Adjustment on initial application of IFRS 9, net of tax (10,100) (10,100)
Adjustment on initial application of IFRS 15, net of tax - - - (89,162) (89,162)
As at 1 January 2018 (restated) 396,328 32,262 147,236 44,203,089 44,778,915
Profit for the year
Profit for the year - - - 43,008,026 43,008,026
Other comprehensive income - - - - -
Total comprehensive income - - - 43,008,026 43,008,026
Transactions with owners, recorded directly in equity
Dividend to equity holders 24 (b)(i) - - - (37,651,172) (37,651,172)
Unclaimed dividend written back 24 (b)(ii) - - - 77,165 77,165
Share based payment contribution 24(a) (iv) - - 80,326 - 80,326
Share based payment recharge - - (72,774) - (72,774)
Balance as at 31 December 2018 396,328 32,262 154,788 49,637,108 50,220,486
Balance at 1 January 2017 396,328 32,262 126,480 30,323,005 30,878,075
Profit for the year
Profit for the year - - - 33,723,730 33,723,730
Other comprehensive income - - - - -
Total comprehensive income - - - 33,723,730 33,723,730
Transactions with owners, recorded directly in equity
Dividend to equity holders 24 (b)(i) - - - (19,816,406) (19,816,406)
Unclaimed dividend written back 24 (b)(ii) - - - 72,022 72,022
Share based payment contribution 24(a) (iv) - - 78,832 - 78,832
Share based payment recharge - - (58,076) - (58,076)
Balance as at 31 December 2017 396,328 32,262 147,236 44,302,351 44,878,177
The accompanying notes to the financial statements and other National disclosures form an integral part of these financial statements.
22
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Statement of Cash Flows
In thousands of naira
Note 2018 2017
Cash flows from operating activities
Profit for the year 43,008,026 33,723,730
Adjustments to reconcile profit before tax to net cash flows:
Depreciation and impairment of property, plant and equipment 15 11,354,763 6,485,547
Net foreign exchange differences 10 96,069 11,168,652
Net finance cost/(income) 10 793,815 (2,298,961)
Equity settled share based payment transactions 24a(iv) 80,326 78,832
Provisions for other long term employee benefits 26 699,084 556,369
Loss/(Gain) on disposal of property, plant and equipment 358,819 (19,281)
Income tax expense 13(a) 16,742,820 13,104,952
73,133,722 62,799,840
Changes in long term receivables (315,873) (242,981)
Change in Long term prepayments (3,763,307) (234,170)
Change in inventories 786,284 (3,272,553)
Change in right of return assets (209,526) -
Change in trade and other receivables (10,833,138) (7,395,039)
Change in contract asset (50,002) -
Change in prepayments 563,151 (79,334)
21,696,280 (23,944,368)
471,532 22,016
372,116 -
Changes in provisions 310,052 302,121
Cash generated from operating activities 82,161,291 27,955,532
Income tax paid 13 (b) (7,195,394) (8,277,383)
Other long term employee benefit paid 26 (274,332) (384,192)
Share based payment recharge paid 24a(iv) (72,774) (58,076)
Net cash in flow from operating activities 74,618,791 19,235,881
Cash flow from investing activities
Finance income 10 1,716,889 6,239,371
Proceeds from sale of property, plant and equipment 26,138 42,931
Acquisition of property, plant and equipment 15 (12,727,302) (8,715,614)
Net cash used in investing activities (10,984,275) (2,433,312)
Cash flow from financing activities
Proceeds from loans obtained -- Intercompany loan 25 c - 4,886,800
Repayments of borrowings -- Intercompany loan 25c (12,543,788) (41,241,015)
25c (1,114,742) (1,502,620)
Finance cost paid (2,478,200) (7,289,033)
Dividends paid 24(b) (44,554,195) (11,428,504)
Net cash used in financing activities (60,690,925) (56,574,372)
Net increase/(decrease) in cash and cash equivalents 2,943,591 (39,771,803)
Cash and cash equivalent at January 1 11,424,767 51,196,570
Cash and cash equivalent at December 31 23 14,368,358 11,424,767
-- Bank loan
The accompanying notes to the financial statements and other National disclosures form an integral part of these financial
statements.
Change in contract liabilities
Change in refund liabilities
Change in trade and other payables (excluding dividend payable)
23
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Notes to the financial statements
Page Page
1 Reporting entity 25 19 Deferred tax assets and liabilities 63
2 Basis of accounting 25 20 Inventories 64
3 Significant accounting policies 25 21 Right of return assets and refund
liabilities
64
4 Changes in accounting policies and
disclosures
40 22 Trade and other receivables 64
5 Significant accounting judgements,
estimates and assumptions
50 23 Cash and cash equivalent 65
6 Operating segment 53 24 Capital, reserves and dividends 65
7 Information about reportable segments 53 25 Loans and borrowings 67
8 Geoghraphical Information 54 26 Employee benefits 70
9 Revenue 54 27 Pension payable 71
10 Net finance costs 55 28 Provisions 71
11 Profit before income taxation 56 29 Trade and other payables 72
12 Personnel expenses 57 30 Contract liabilities 72
13 Taxation 58 31 Financial instruments 72
14 Earnings and declared dividend per share 59 32 Operating Leases 88
15 Property, plant and equipment 60 33 Contingencies 89
16 Intangible assets 62 34 Related Parties 89
17 Long term receivables 62 35 Events after the reporting date 91
18 Prepayment 62
24
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
1 Reporting entity
2 Basis of accounting
(a) Statement of Compliance
(b) Basis of measurement
● Liabilities for equity-settled share-based payment arrangements.
●
● Inventory at lower of cost and net realisable value.
(c) Functional and presentation currency
(d) Changes in accounting policies and disclosures
3 Significant accounting policies
Page Number
a) Foreign currency 26
b) Financial instruments 26
c) Property, plant and equipment 32
d) Intangible assets 33
e) Leased assets 33
f) Inventories 33
g) Impairment 34
h) Employee benefits 34
i) Provisions 36
j) Contingent liabilities 36
k) Statement of cash flows 36
l) Revenue 36
m) Advance payment to contractors 38
n) Finance income and finance costs 38
o) Income tax 38
p) Earnings per share 39
q) Segment reporting 39
The Company applied IFRS 9 and IFRS 15 for the first time. The nature and effect of the changes as a
result of adoption of these new accounting standards are described in Note 4.1.
This change in accounting policies was applied in accordance with transitional requirements of IFRS 9
(Financial Instruments) and IFRS 15 (Revenue from contract with customers ).
Nestlé Nigeria Plc ("the Company") is a Company domiciled in Nigeria. The address of the Company's
registered office is at 22-24, Industrial Avenue, Ilupeju, Lagos. The Company is listed on the Nigerian Stock
Exchange.
The principal activities of the Company continue to be the manufacturing, marketing and distribution of
food products including purified water throughout the country. The Company also exports some of its
products to other countries within Africa.
These financial statements have been prepared in accordance with IFRS. They were authorised for
issue by the Company's Board of Directors on 4 March 2019.
the present value of the defined benefit obligation relating to long service awards.
These financial statements are presented in Naira, which is the Company’s functional currency. All
financial information presented in Naira has been rounded to the nearest thousand except where
otherwise indicated.
The financial statements have been prepared on historical cost basis except for the following;
The Company has consistently applied the following accounting policies to all periods presented in these
financial statements. Set out below is an index of the significant accounting policies, the details of which
are available on the pages that follow.
25
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
r) Dividends 39
s) Government grants 39
t) Related parties 39
a) Foreign currency transaction
b) Financial instruments
l)
Transactions denominated in foreign currencies are translated and recorded in Naira at the actual
exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in
foreign currencies at the reporting date are retranslated to the functional currency at the rates of
exchange prevailing at that date. The foreign currency gain or loss on monetary items is the difference
between amortized cost in the functional currency at the beginning of the period, adjusted for
effective interest and payments during the period, and the amortized cost in foreign currency
translated at the exchange rate at the end of the reporting period. Foreign currency differences
arising on retranslation are recognized in profit or loss. Non-monetary items that are measured in
terms of historical cost in a foreign currency are translated using the exchange rate at the date of the
transaction.
Financial assets
All regular way purchases or sales of financial assets are recognised and derecognised on a trade date
basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of
assets within the time frame established by regulation or convention in the marketplace.
All recognised financial assets are measured subsequently in their entirety at either amortised cost or
fair value, depending on the classification of the financial assets.
Financial assets and financial liabilities are recognised in the Company’s statement of financial
position when the Company becomes a party to the contractual provisions of the instrument.
With the exception of trade receivables that do not contain a significant financing component or for
which the Company has applied the practical expedient, financial instruments are initially measured
at their fair value, except in the case of financial assets and financial liabilities recorded at FVPL,
transaction costs are added to, or subtracted from, this amount.Trade receivables that do not contain a significant financing component or for which the Company
has applied the practical expedient are measured at the transaction price determined under IFRS 15.
Refer to the accounting policies on Revenue from contracts with customers.
Classification of financial assets
Debt instruments that meet the following conditions are measured subsequently at amortised cost:
• the financial asset is held within a business model whose objective is to hold financial assets in order
to collect contractual cash flows; and
• the contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
Amortised cost and effective interest method
The effective interest method is a method of calculating the amortised cost of a debt instrument and
of allocating interest income over the relevant period.
For financial assets other than purchased or originated credit‑impaired financial assets (i.e. assets that
are credit‑impaired on initial recognition), the effective interest rate is the rate that exactly discounts
estimated future cash receipts (including all fees and points paid or received that form an integral
part of the effective interest rate, transaction costs and other premiums or discounts) excluding
expected credit losses, through the expected life of the debt instrument, or, where appropriate, a
shorter period, to the gross carrying amount of the debt instrument on initial recognition.
26
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
(i) Significant increase in credit risk
In assessing whether the credit risk on a financial instrument has increased significantly since initial
recognition, the Company compares the risk of a default occurring on the financial instrument at the
reporting date with the risk of a default occurring on the financial instrument at the date of initial
recognition. In making this assessment, the Company considers both quantitative and qualitative
information that is reasonable and supportable, including historical experience and forward‑looking
information that is available without undue cost or effort. Forward‑looking information considered
includes the future prospects of the industries in which the Company’s debtors operate, obtained
from economic expert reports, financial analysts, governmental bodies, relevant think‑tanks and
other similar organisations, as well as consideration of various external sources of actual and forecast
economic information that relate to the Company’s core operations.
Impairment of financial assets
The Company recognises a loss allowance for expected credit losses (ECL) on debt instruments that
are measured at amortised cost (trade receivables and short-term deposits). The amount of expected
credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition
of the respective financial instrument.The Company always recognises lifetime ECL for trade receivables. The expected credit losses on
these financial assets are estimated using a provision matrix based on the Company’s historical credit
loss experience, adjusted for factors that are specific to the debtors, general economic conditions and
an assessment of both the current as well as the forecast direction of conditions at the reporting date,
including time value of money where appropriate.
For purchased or originated credit‑impaired financial assets, a credit‑adjusted effective interest rate is
calculated by discounting the estimated future cash flows, including expected credit losses, to the
amortised cost of the debt instrument on initial recognition.
Interest income is recognised using the effective interest method for debt instruments measured
subsequently at amortised cost. For financial assets other than purchased or originated
credit‑impaired financial assets, interest income is calculated by applying the effective interest rate to
the gross carrying amount of a financial asset, except for financial assets that have subsequently
become credit‑impaired (see below). For financial assets that have subsequently become
credit‑impaired, interest income is recognised by applying the effective interest rate to the amortised
cost of the financial asset. If, in subsequent reporting periods, the credit risk on the credit‑impaired
financial instrument improves so that the financial asset is no longer credit‑impaired, interest income
is recognised by applying the effective interest rate to the gross carrying amount of the financial asset.
Interest income is recognised in profit or loss and is included in the "finance income – interest Foreign exchange gains and losses
The carrying amount of financial assets that are denominated in a foreign currency is determined in
that foreign currency and translated at the spot rate at the end of each reporting period. Specifically
for financial assets measured at amortised cost that are not part of a designated hedging relationship,
exchange differences are recognised in the statement of profit or loss.
The amortised cost of a financial asset is the amount at which the financial asset is measured at initial
recognition minus the principal repayments, plus the cumulative amortisation using the effective
interest method of any difference between that initial amount and the maturity amount, adjusted for
any loss allowance. The gross carrying amount of a financial asset is the amortised cost of a financial
asset before adjusting for any loss allowance.
For all other financial instruments, the Company recognises lifetime ECL when there has been a
significant increase in credit risk since initial recognition. However, if the credit risk on the financial
instrument has not increased significantly since initial recognition, the Company measures the loss
allowance for that financial instrument at an amount equal to 12‑month ECL.Lifetime ECL represents the expected credit losses that will result from all possible default events over
the expected life of a financial instrument. In contrast, 12‑month ECL represents the portion of
lifetime ECL that is expected to result from default events on a financial instrument that are possible
within 12 months after the reporting date.
For financial assets other than purchased or originated credit‑impaired financial assets (i.e. assets that
are credit‑impaired on initial recognition), the effective interest rate is the rate that exactly discounts
estimated future cash receipts (including all fees and points paid or received that form an integral
part of the effective interest rate, transaction costs and other premiums or discounts) excluding
expected credit losses, through the expected life of the debt instrument, or, where appropriate, a
shorter period, to the gross carrying amount of the debt instrument on initial recognition.
27
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
In particular, the following information is taken into account when assessing whether credit risk has
increased significantly since initial recognition:
• an actual or expected significant deterioration in the financial instrument’s external (if available) or
internal credit rating;
• significant deterioration in external market indicators of credit risk for a particular financial
instrument, e.g. a significant increase in the credit spread, the credit default swap prices for the
debtor, or the length of time or the extent to which the fair value of a financial asset has been less
than its amortised cost;
• existing or forecast adverse changes in business, financial or economic conditions that are expected
to cause a significant decrease in the debtor’s ability to meet its debt obligations;
• an actual or expected significant deterioration in the operating results of the debtor;
• significant increases in credit risk on other financial instruments of the same debtor;
• an actual or expected significant adverse change in the regulatory, economic, or technological
environment of the debtor that results in a significant decrease in the debtor’s ability to meet its debt
obligations.
(i) Significant increase in credit risk
In assessing whether the credit risk on a financial instrument has increased significantly since initial
recognition, the Company compares the risk of a default occurring on the financial instrument at the
reporting date with the risk of a default occurring on the financial instrument at the date of initial
recognition. In making this assessment, the Company considers both quantitative and qualitative
information that is reasonable and supportable, including historical experience and forward‑looking
information that is available without undue cost or effort. Forward‑looking information considered
includes the future prospects of the industries in which the Company’s debtors operate, obtained
from economic expert reports, financial analysts, governmental bodies, relevant think‑tanks and
other similar organisations, as well as consideration of various external sources of actual and forecast
economic information that relate to the Company’s core operations.
(1) The financial instrument has a low risk of default,
(2) The debtor has a strong capacity to meet its contractual cash flow obligations in the near term,
and
(3) Adverse changes in economic and business conditions in the longer term may, but will not
necessarily, reduce the ability of the borrower to fulfil its contractual cash flow obligations.The Company considers a financial asset to have low credit risk when the asset has external credit
rating of ‘investment grade’ in accordance with the globally understood definition or if an external
rating is not available, the asset has an internal rating of ‘performing’. Performing means that the
counterparty has a strong financial position and there is no past due amounts.
The Company regularly monitors the effectiveness of the criteria used to identify whether there has
been a significant increase in credit risk and revises them as appropriate to ensure that the criteria are
capable of identifying significant increase in credit risk before the amount becomes past due.
Despite the foregoing, the Company assumes that the credit risk on a financial instrument has not
increased significantly since initial recognition if the financial instrument is determined to have low
credit risk at the reporting date. A financial instrument is determined to have low credit risk if:
Irrespective of the outcome of the above assessment, the Company presumes that the credit risk on a
financial asset has increased significantly since initial recognition when contractual payments are
more than 30 days past due, unless the Company has reasonable and supportable information that
demonstrates otherwise.
28
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
(iii) Credit‑impaired financial assets
A financial asset is credit‑impaired when one or more events that have a detrimental impact on the
estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is
credit‑impaired includes observable data about the following events:
(ii) Definition of default
The Company considers the following as constituting an event of default for internal credit risk
management purposes as historical experience indicates that financial assets that meet either of the
following criteria are generally not recoverable:
• when there is a breach of financial covenants by the debtor; or
• information developed internally or obtained from external sources indicates that the debtor is
unlikely to pay its creditors, including the Company, in full (without taking into account any collateral
held by the Company).
Irrespective of the above analysis, the Company considers that default has occurred when a financial
asset is more than 60 days past due unless the Company has reasonable and supportable information
to demonstrate that a more lagging default criterion is more appropriate.
As for the exposure at default, for financial assets, this is represented by the assets’ gross carrying
amount at the reporting date.
(v) Measurement and recognition of expected credit losses
The measurement of expected credit losses is a function of the probability of default, loss given
default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The
assessment of the probability of default and loss given default is based on historical data adjusted by
forward‑looking information as described above.
(iv) Write off policy
The Company writes off a financial asset when there is sufficient information indicating that the
debtor is in severe financial difficulty and there is no realistic prospect of recovery, e.g. when all
economic attempts to recover the outstanding amount have failed or when the period within which
the debt can be legally enforced has expired or unable to locate debtor or debtor passed away leaving
no asset, whichever occurs sooner.Financial assets written off may still be subject to enforcement activities under the Company’s
recovery procedures, taking into account legal advice where appropriate. Any recoveries made are
recognized in profit or loss.
(a) significant financial difficulty of the issuer or the borrower;
(b) a breach of contract, such as a default or past due event (see (ii) above);
(c) the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s
financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not
otherwise consider;
(d) it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation;
29
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
ll) Financial liabilities Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit
or loss, loans and borrowings, payables, as appropriate.
All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and
payables, net of directly attributable transaction costs.
The Company’s financial liabilities include trade and other payables, loans and borrowings including
bank overdrafts.
Financial liabilities measured subsequently at amortised cost.
Subsequent measurement
All financial liabilities are measured subsequently at amortised cost using the effective interest
method.
Financial liabilities that are not:
(i) contingent consideration of an acquirer in a business combination,
(ii) held‑for‑trading, or
(iii) designated as at FVTPL, are measured subsequently at amortised cost using the effective interest
method.
For financial assets, the expected credit loss is estimated as the difference between all contractual
cash flows that are due to the Company in accordance with the contract and all the cash flows that
the Company expects to receive, discounted at the original effective interest rate.If the Company has measured the loss allowance for a financial instrument at an amount equal to
lifetime ECL in the previous reporting period, but determines at the current reporting date that the
conditions for lifetime ECL are no longer met, the Company measures the loss allowance at an
amount equal to 12‑month ECL at the current reporting date, except for assets for which simplified
approach was used.
The Company recognises an impairment gain or loss in profit or loss for all financial instruments with
a corresponding adjustment to their carrying amount through a loss allowance account.For trade receivables, the Company applies a simplified approach in calculating ECLs. Therefore, the
Company does not track changes in credit risk, but instead recognises a loss allowance based on
lifetime ECLs at each reporting date. The Company has established a provision matrix that is based on
its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and
the economic environment.Derecognition of financial assets
The Company derecognises a financial asset only when the contractual rights to the cash flows from
the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of
ownership of the asset to another entity. If the Company neither transfers nor retains substantially all
the risks and rewards of ownership and continues to control the transferred asset, the Company
recognises its retained interest in the asset and an associated liability for amounts it may have to pay.
If the Company retains substantially all the risks and rewards of ownership of a transferred financial
asset, the Company continues to recognise the financial asset and also recognises a collateralised
borrowing for the proceeds received.
On derecognition of a financial asset measured at amortised cost, the difference between the asset’s
carrying amount and the sum of the consideration received and receivable is recognised in profit or
loss.
30
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
lll) Share capital
Derecognition of financial liabilities
The Company derecognises financial liabilities when, and only when, the Company’s obligations are
discharged, cancelled or have expired. The difference between the carrying amount of the financial
liability derecognised and the consideration paid and payable is recognised in profit or loss.
When the Company exchanges with the existing lender one debt instrument into another one with
the substantially different terms, such exchange is accounted for as an extinguishment of the original
financial liability and the recognition of a new financial liability. Similarly, the Company accounts for
substantial modification of terms of an existing liability or part of it as an extinguishment of the
original financial liability and the recognition of a new liability.
It is assumed that the terms are substantially different if the discounted present value of the cash
flows under the new terms, including any fees paid net of any fees received and discounted using the
original effective rate is at least 10 per cent different from the discounted present value of the
remaining cash flows of the original financial liability. If the modification is not substantial, the
difference between:
(1) the carrying amount of the liability before the modification; and
(2) the present value of the cash flows after modification should be recognised in profit or loss as the
modification gain or loss within other gains and losses.
Foreign exchange gains and losses
For financial liabilities that are denominated in a foreign currency and are measured at amortised cost
at the end of each reporting period, the foreign exchange gains and losses are determined based on
the amortised cost of the instruments. These foreign exchange gains and losses are recognised in
profit or loss for financial liabilities that are not part of a designated hedging relationship.
The fair value of financial liabilities denominated in a foreign currency is determined in that foreign
currency and translated at the spot rate at the end of the reporting period.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary
shares and share options are recognised as a deduction from equity, net of any tax effects.
Loans and borrowings
This is the category most relevant to the Company. After initial recognition, interest-bearing loans and
borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are
recognised in profit or loss when the liabilities are derecognised as well as through the effective
interest (EIR) amortisation process.
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees
or costs that are an integral part of the EIR. The EIR amortisation is included as finance costs in the
statement of profit or loss.
This category generally applies to interest-bearing loans and borrowings.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the statement of
financial position if there is a currently enforceable legal right to offset the recognised amounts and
there is an intention to settle on a net basis, to realise the assets and settle the liabilities
The effective interest method is a method of calculating the amortised cost of a financial liability and
of allocating interest expense over the relevant period. The effective interest rate is the rate that
exactly discounts estimated future cash payments (including all fees and points paid or received that
form an integral part of the effective interest rate, transaction costs and other premiums or discounts)
through the expected life of the financial liability, or (where appropriate) a shorter period, to the
amortised cost of a financial liability.
31
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
c) Property, plant and equipment
I. Recognition and measurement
II . Subsequent costs
III. Depreciation
The estimated useful lives for the current and comparative periods are as follows:• buildings 25 - 35 years
• plant and machinery 10 - 25 years
• motor vehicles 5 years
• furniture and fittings 5 years
• IT equipment 3 years
Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of
each part of an item of property, plant and equipment which reflects the expected pattern of
consumption of the future economic benefits embodied in the asset.
Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount
substituted for cost, less its residual value.
When parts of an item of property, plant and equipment have different useful lives, they are
accounted for as separate items (major components) of property, plant and equipment.
Gains and losses on disposal of an item of property, plant and equipment are determined by
comparing the proceeds from disposal with the carrying amount of property, plant and equipment,
and are recognised in profit or loss.
The cost of replacing a part of an item of property, plant and equipment is recognised in the carrying
amount of the item if it is probable that the future economic benefits embodied within the part will
flow to the Company and its cost can be measured reliably. The carrying amount of the replaced part
is derecognised. The costs of the day-to-day servicing of property, plant and equipment are
recognised in profit or loss as incurred.
Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is
reasonably certain that the Company will obtain ownership by the end of the lease term in which case
the assets are depreciated over the useful life.
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary
shares and share options are recognised as a deduction from equity, net of any tax effects.
Cost includes expenditure that is directly attributable to the acquisition of the asset. Items of
property, plant and equipment under construction are disclosed as capital work-in-progress. The cost
of construction recognised includes the cost of materials and direct labour, any other costs directly
attributable to bringing the assets to a working condition for their intended use, the costs of
dismantling and removing the items and restoring the site on which they are located, and borrowing
costs on qualifying assets.Purchased software that is integral to the functionality of the related equipment is capitalised as part
of the equipment.
Depreciation methods, useful lives and residual values are reviewed at each financial year end and
adjusted if appropriate. Capital work-in-progress is not depreciated. The attributable cost of each
asset is transferred to the relevant asset category immediately the asset is available for use and
depreciated accordingly.
Items of property, plant and equipment are measured at cost less accumulated depreciation and
accumulated impairment losses. The cost of certain items of property, plant and equipment at 1
January 2011, the Company's date of transition to IFRS, was determined with reference to its fair
value at that date.
32
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Land has unlimited useful life so it is not depreciated.
d) Intangible assets
I. Software
II. Subsequent expenditure
III. Amortisation
Computer software 5 years
e) Leased assets - (IAS 17)
f) Inventories
-
Engineering spares -
Goods-in-transit - purchase cost incurred to date.
Purchased software with finite useful life is measured at cost less accumulated amortisation and
accumulated impairment losses.
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied
in the specific asset to which it relates. All other expenditure, including expenditure on internally
generated goodwill and brands, is recognised in profit or loss as incurred.
Amortisation is recognized in profit or loss on a straight-line basis over the estimated useful lives of
intangible assets, other than goodwill, from the date that they are available for use, since this most
closely reflects the expected pattern of consumption of the future economic benefits embodied in the
asset. The estimated useful life for the current and comparative periods is as follows:
purchase cost on a weighted average cost basis,
including transportation and clearing costs.
Amortisation methods, useful lives and residual values are reviewed at each financial year-end and
adjusted if appropriate.
Depreciation methods, useful lives and residual values are reviewed at each financial year end and
adjusted if appropriate. Capital work-in-progress is not depreciated. The attributable cost of each
asset is transferred to the relevant asset category immediately the asset is available for use and
depreciated accordingly.
Leases in terms of which the Company assumes substantially all the risks and rewards of ownership
are classified as finance leases. Upon initial recognition the leased asset is measured at an amount
equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent
to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to Other leases are operating leases and the leased assets are not recognised in the Company’s
statement of financial position.
Products-in-process and
manufactured finished goods
weighted average cost of direct materials and labour
plus a reasonable proportion of manufacturing
overheads based on normal levels of activity.
Payments made under operating leases are recognised in profit and loss on a straight-line basis over
the term of the lease.
Inventory is measured at the lower of cost and net realisable value. The cost of inventory includes
expenditure incurred in acquiring the inventory, production or conversion costs and other costs
incurred in bringing them to their existing location and condition. Cost incurred in bringing each
product to its present location and condition is based on:Raw and packaging materials and
purchased finished goods
- purchase cost on a first- in, first - out basis including
transportation and clearing costs.
Amortisation is calculated over the cost of the asset, or other amount substituted for cost, less its
residual value.
Items of PPE classified as Independent Power Plant (IPP) consists of certain asset classes as specified
above and depreciation has been charged on the same basis as stated above.
33
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Allowance is made for obsolete, slow moving or defective items where appropriate.
g) Impairment of Non-financial assets
h) Employee benefits
I. Defined contribution plans
1 Defined contribution gratuity scheme
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its
fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate that reflects current market assessments of the time
value of money and the risks specific to the asset or cash generating unit (CGU). For the purpose of
impairment testing, assets that cannot be tested individually are grouped together into the smallest
group of assets that generates cash inflows from continuing use that are largely independent of the
cash inflows of other assets or groups of assets (the “cash-generating unit, or CGU”).
An impairment loss is recognized if the carrying amount of an asset or its CGU exceeds its estimated
recoverable amount. Impairment losses are recognized in profit or loss. Impairment losses recognized
in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the
units, and then to reduce the carrying amounts of the other assets in the unit (group of units) on a pro
rata basis.In respect of other assets (excluding Goodwill for which impairment loss is not reversed), impairment
losses recognized in prior periods are assessed at each reporting date for any indications that the loss
has decreased or no longer exists. An impairment loss is reversed if there has been a change in the
estimates used to determine the recoverable amount. An impairment loss is reversed only to the
extent that the asset’s carrying amount does not exceed the carrying amount that would have been
determined, net of depreciation or amortization, if no impairment loss had been recognised.
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed
contributions into a separate entity and will have no legal or constructive obligation to pay further
amounts. Obligations for contributions to defined contribution pension plans are recognised as an
employee benefit expense in profit or loss in the period during which services are rendered by
employees. Prepaid contributions are recognised as an asset to the extent that a cash refund or a
reduction in future payments is available.The Company has the following defined contribution plans: defined contribution gratuity scheme and
pension fund scheme.
The Company has a defined contribution gratuity scheme for its Nigerian employees, which is funded.
Under this scheme, a specified amount in accordance with the Gratuity Scheme Agreement is
contributed by the Company and charged to the profit and loss account over the service life of the
employees. These employees’ entitlements are calculated based on their actual salaries and paid to
Nestlé Nigeria Trust (CPFA) Limited (“NNTL”) each month.
The carrying amounts of the Company’s non-financial assets, other than inventories are reviewed at
each reporting date to determine whether there is any indication of impairment. If any such
indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets
that have indefinite useful lives or that are not yet available for use, the recoverable amount is
estimated each year at the same time.
Net realisable value is the estimated selling price in the ordinary course of business, less the
estimated costs of conversion and selling expenses.
Engineering spares are classified as inventory and are recognised in the profit and loss account as
consumed.
34
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
2 Pension fund scheme
II. Other long term employee benefits (long service awards)
III. Termination benefits
IV. Short-term employee benefits
V. Share-based payment transactions
Termination benefits are recognised as an expense when the Company is committed demonstrably,
without realistic possibility of withdrawal, to a formal detailed plan to either terminate employment
before the normal retirement date, or to provide termination benefits as a result of an offer made to
encourage voluntary redundancy. Termination benefits for voluntary redundancies are recognised as
an expense if the Company has made an offer of voluntary redundancy, it is probable that the offer
will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable
more than 12 months after the reporting period, then they are discounted to their present value.
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as
the related service is provided.A liability is recognised for the amount expected to be paid under short-term cash bonus or profit
sharing plans if the Company has a present legal or constructive obligation to pay this amount as a
result of past service provided by the employee, and the obligation can be estimated reliably.
The Company has a defined contribution gratuity scheme for its Nigerian employees, which is funded.
Under this scheme, a specified amount in accordance with the Gratuity Scheme Agreement is
contributed by the Company and charged to the profit and loss account over the service life of the
employees. These employees’ entitlements are calculated based on their actual salaries and paid to
Nestlé Nigeria Trust (CPFA) Limited (“NNTL”) each month.
Nestlé S.A., the ultimate holding company of Nestlé Nigeria Plc operates an equity incentive scheme,
Restricted Stock Unit Plan (RSUP) for its management employees whereby it awards shares to
deserving employees.
The grant date fair value of share-based payment awards granted to employees is recognised as an
employee expense, with a corresponding increase in equity as a capital contribution from Nestlé S.A.,
over the period that the employees unconditionally become entitled to the awards.A recharge arrangement exists between Nestlé S.A. and Nestlé Nigeria Plc whereby vested shares
delivered to employees' are recharged. The recharge transaction is recognised as an intercompany
liability with a corresponding adjustment in equity for the capital contribution recognized in respect
of the share-based payment.
NNTL previously called Nestlé Nigeria Provident Fund Limited was incorporated by the Company and
is a duly registered closed pension fund administrator whose sole activity is the administration of the
pension and defined contribution gratuity scheme for employees of Nestlé Nigeria Plc.
In line with the provisions of the Pension Reform Act 2014, the Company instituted a defined
contribution pension scheme for its entire Nigerian Staff. Staff contributions to the scheme are
funded through payroll deductions while the Company's contributions are charged to the profit and
loss account. The Company's contribution is 10% for all senior staff, junior staff and temporary staff
while employees contribute 8% of their monthly emolument (basic, housing and transport).
Long service awards accrue to employees based on graduated periods of uninterrupted service. These
benefits accrue over the service life of the employees. The charge to the profit and loss account is
based on independent actuarial valuation performed using the projected unit credit method. Ernest &
Young (FRC/2012/NAS/00000000738) was engaged as the independent actuary in the current year.
Actuarial remeasurements are recognised in the profit and loss in the year in which they arise.
35
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
i) Provisions
j) Contingent liabilities
k) Statement of cash flows
l) Revenue
Revenue from contracts with customers IFRS 15
The amount recognised as an expense is adjusted to reflect the number of awards for which the
related service and non-market vesting conditions are expected to be met, such that the amount
ultimately recognised as an expense is based on the number of awards that do meet the related
service and non-market conditions at the vesting date.For share-based payment awards with non-vesting conditions, the grant date fair value of the share-
based payment is measured to reflect such conditions and there is no true-up for differences between
expected and actual outcomes.
Share-based payment arrangements in which the Company receives goods or services and has no
obligation to settle the share-based payment transaction are accounted for as equity-settled share-
based payment transactions, regardless of the equity instrument awarded.
A provision is recognised if, as a result of a past event, the Company has a present legal or
constructive obligation that can be estimated reliably, and it is probable that an outflow of economic
benefits will be required to settle the obligation. Provisions are determined by discounting the
expected future cash flows at a pre-tax rate that reflects current market assessments of the time
value of money and the risks specific to the liability. The unwinding of the discount is recognised as
finance cost.
Sale of goods
The Company is into manufacturing, marketing and distribution of food products including purified
water. Sales are recognized when control of the products has transferred, being when the products
are shipped to the customer. Sales occur when the products have been shipped to the specific
location, and either the Distributor has accepted the products in accordance with the sales contract,
or the Company has objective evidence that all criteria for acceptance have been satisfied.
The statement of cash flows is prepared using the indirect method. Changes in statement of financial
position items that have not resulted in cash flows such as translation differences, fair value changes,
equity-settled share-based payments and other non-cash items, have been eliminated for the purpose
of preparing the statement. Dividends paid to ordinary shareholders are included in financing
activities. Finance cost is also included in financing activities while finance income received is included
in investing activities.
A contingent liability is a possible obligation that arises from past events and whose existence will be
confirmed only by the occurrence or non-occurrence of one or more uncertain future events not
wholly within the control of the company, or a present obligation that arises from past events but is
not recognised because it is not probable that an outflow of resources embodying economic benefits
will be required to settle the obligation; or the amount of the obligation cannot be measured with
sufficient reliability.Contingent liabilities are only disclosed and not recognised as liabilities in the statement of financial
position.
If the likelihood of an outflow of resources is remote, the possible obligation is neither a provision nor
a contingent liability and no disclosure is made.
36
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Trade receivables
A receivable represents the Company’s right to an amount of consideration that is unconditional (i.e.,
only the passage of time is required before payment of the consideration is due). Refer to accounting
policies of financial assets.
Contract Asset
A contract asset is the right to consideration in exchange for goods or services transferred to the
customer. If the Company performs by transferring goods or services to a customer before the
customer pays consideration or before payment is due, a contract asset is recognised for the earned
consideration that is conditional.Contract liabilities
A contract liability is the obligation to transfer goods or services to a customer for which the Company
has received consideration (or an amount of consideration is due) from the customer. If a customer
pays consideration before the Company transfers goods or services to the customer, a contract
liability is recognised when the payment is made or the payment is due (whichever is earlier).
Contract liabilities are recognised as revenue when the Company performs under the contract.
(i) Variable consideration
If the consideration in a contract includes a variable amount, the Company estimates the amount of
consideration to which it will be entitled in exchange for transferring the goods to the customer. The
variable consideration is estimated at contract inception and constrained until it is highly probable
that a significant revenue reversal in the amount of cumulative revenue recognised will not occur
when the associated uncertainty with the variable consideration is subsequently resolved. Some
contracts for the sale of goods provide customers with a right of return and trade incentives. The
rights of return and trade incentives give rise to variable consideration.
- Rights of return
Certain contracts provide a customer with a right to return the goods within a specified period. The
Company uses the expected value method to estimate the goods that will not be returned because
this method best predicts the amount of variable consideration to which the Company will be
entitled. The requirements in IFRS 15 on constraining estimates of variable consideration are also
applied in order to determine the amount of variable consideration that can be included in the
transaction price. For goods that are expected to be returned, instead of revenue, the Company
recognises a refund liability. A right of return asset (and corresponding adjustment to cost of sales) is
also recognised for the right to recover products from a customer.-Trade Incentives
The Company provides incentives to all customers on the achievement of the performance criteria on
the signed incentive guide. Incentives are credited to the customer’s account, available for purchase
of products. To estimate the variable consideration for the expected future incentives, the Company
applies the maximum achievement criteria of set targets. The Sales thresholds contained in the signed
incentive guide primarily drive the selected method that best predicts the amount of variable
consideration. The Company then applies the requirements on constraining estimates of variable
consideration and recognizes a liability for the expected future incentives.
Contract balances
(ii) Significant financing component
Generally, the Company receives short-term advances from its customers. Using the practical
expedient in IFRS 15, the Company does not adjust the promised amount of consideration for the
effects of a significant financing component if it expects, at contract inception, that the period
between the transfer of the promised good or service to the customer and when the customer pays
for that good or service will be one year or less.
37
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
m) Advance payment to contractors
n) Finance income and finance costs
o) Income tax
Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using
tax rates statutorily enacted at the reporting date, and any adjustment to tax payable in respect of
previous years.
Deferred tax is recognised in respect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for taxation purposes.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences
when they reverse, based on the laws that have been statutorily enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax
liabilities and assets, and they relate to income taxes levied by the same tax authority on the same
taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on
a net basis or their tax assets and liabilities will be realised simultaneously.
Contract liabilities
A contract liability is the obligation to transfer goods or services to a customer for which the Company
has received consideration (or an amount of consideration is due) from the customer. If a customer
pays consideration before the Company transfers goods or services to the customer, a contract
liability is recognised when the payment is made or the payment is due (whichever is earlier).
Contract liabilities are recognised as revenue when the Company performs under the contract.
Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised
in profit or loss except to the extent that it relates to a business combination, or items recognized
directly in equity or in other comprehensive income.
Advance payments represents payments made to contractors for ongoing construction projects as the
year end date.
Cost to obtain a contract
The Company pays sales commission to its employees for certain contracts that they obtain for sales
of products. The Company has elected to apply the optional practical expedient for costs to obtain a
contract which allows the Company to immediately expense sales commissions (included under
peronnel expenses) because the amortisation period of the asset that the Company otherwise would
have used is one year or less.
Assets and liabilities arising from rights of return
Right of return assets
Right of return asset represents the Company’s right to recover the goods expected to be returned by
customers. The asset is measured at the former carrying amount of the inventory, less any expected
costs to recover the goods, including any potential decreases in the value of the returned goods. The
Company updates the measurement of the asset recorded for any revisions to its expected level of
returns, as well as any additional decreases in the value of the returned products.
Refund liabilities
A refund liability is the obligation to refund some or all of the consideration received (or receivable)
from the customer and is measured at the amount the Company ultimately expects it will have to
return to the customer.
The Company updates its estimates of refund liabilities and the corresponding change in the
transaction price at the end of each reporting period. Refer to above accounting policy on variable
consideration.
Net finance cost includes interest expense on borrowings as well as interest income on funds
invested. Net finance cost also includes other finance income and expense, such as exchange
differences on loans and borrowings and unwinding of the discount on provisions.
Foreign currency gains and losses are reported on a net basis.
38
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
p) Earnings per share
q) Segment reporting
r) Dividends
Dividends are recognised as liability in the period they are declared.
s) Government grants
t) Related parties
Government grants are recognised at fair value when there is reasonable assurance that the Company
will comply with the conditions attaching to them and the grants will be received. Grants related to
income are recognized as deferred income and allocated into profit or loss on a systematic basis over
the periods in which the entity recognizes as expenses the related costs for which the grant is
intended to compensate.
The benefit of a government loan at below market rate of interest is treated as a government grant
related to income.The fair value of the government loan at below market rate of interest is estimated as the present
value of all future cash flows discounted using the prevailing market rate(s) of interest for a similar
instrument with a similar credit rating. The benefit of the government grant is measured as the
difference between the fair value of the loan and the proceeds received.
An operating segment is a component of the Company that engages in business activities from which
it may earn revenues and incur expenses, including revenues and expenses that relate to transactions
with any of the Company's other components. All operating segments' operating results are reviewed
regularly by the Company's Board of Directors (BOD) to make decisions about resources to be
allocated to the segment and assess its performance, and for which discrete financial information is
available.The Company's primary format for segment reporting is based on business segments. The business
segments are determined by management based on the Company's internal reporting structure.Segment results, assets and liabilities, that are reported to the BOD includes items directly
attributable to a segment as well as those that can be allocated on a reasonable basis.Unallocated items comprise mainly corporate assets (primarily the Company's head office), head
office expenses and income tax assets and liabilities, net finance cost and amortisation of intangible
assets.Segment capital expenditure is the total cost incurred during the period to acquire property, plant
and equipment and intangible assets.
Dividends which remained unclaimed for a period exceeding twelve (12) years from the date of
declaration and which are no longer actionable by shareholders in accordance with Section 385 of
Companies and Allied Matters Act of Nigeria are written back to retained earnings.
The Company presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic
EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by
the weighted average number of ordinary shares outstanding during the period, adjusted for own
shares held. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary
shareholders and the weighted average number of ordinary shares outstanding, adjusted for own
shares held, for the effects of all dilutive potential ordinary shares.
Related parties include the holding company and other group entities. Directors, their close family
members and any employee who is able to exert a significant influence on the operating policies of
the Company are also considered to be related parties. Key management personnel are also regarded
as related parties. Key management personnel are those persons having authority and responsibility
for planning, directing and controlling the activities of the entity, directly or indirectly, including any
director (whether executive or otherwise) of that entity.
39
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Notes to the financial statements
4
i
Reference Increase/(decrea
Contract Asset 43,177
Right of return assets a 142,470
Trade receivables a (73,673)
Total assets 111,974
Liabilities
Deferred tax liabilities b (41,959)
Trade and other payables a (3,387,261)
Refund liabilities a 243,095
Contract liabilities (current) a 3,387,261 Total liabilities 201,136
Total adjustment on equity:
Retained earnings c (89,162)
(89,162)
Changes in accounting policies and disclosures from new and amended standards adopted in
current year
Changes in accounting policies and disclosures
The Company applied IFRS 15 and IFRS 9 for the first time. The nature and effect of the changes as
a result of adoption of these new accounting standards are described below;
In the current year, the Company has applied IFRS 15 Revenue from Contracts with Customers (as
amended in April 2016) which is effective for an annual period that begins on or after 1 January
2018. IFRS 15 supersedes IAS 11 Construction Contracts, IAS 18 Revenue and related
Interpretations and it applies, with limited exceptions, to all revenue arising from contracts with
customers. IFRS 15 introduced a 5‑step approach to revenue recognition. Far more prescriptive
guidance has been added in IFRS 15 to deal with specific scenarios.
IFRS 15 requires entities to exercise judgement, taking into consideration all of the relevant facts
and circumstances when applying each step of the model to contracts with their customers. The
standard also specifies the accounting for the incremental costs of obtaining a contract and the
costs directly related to fulfilling a contract. In addition, the standard requires extensive
disclosures.
In thousands of naira
The Company adopted IFRS 15 using the modified retrospective method of adoption with the date
of initial application of 1 January 2018. Under this method, the standard can be applied either to
all contracts at the date of initial application or only to contracts that are not completed at this
date. The Company elected to apply the standard to all contracts as at 1 January 2018.
The cumulative effect of initially applying IFRS 15 is recognised at the date of initial application as
an adjustment to the opening balance of retained earnings. Therefore, the comparative
information was not restated and continues to be reported under IAS IAS 18 and related
Interpretations.
The effect of adopting IFRS 15 as at 1 January 2018 was, as follows:
Impact of application of IFRS 15 Revenue from Contracts with Customers
Assets
40
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Reference IFRS 15
Under previous
IAS 18 Increase/
(decrease) In thousands of naira
Revenue a 266,274,621 266,735,920 (461,299)
Cost of sales a (152,354,445) (152,613,972) (259,527)
Gross profit 113,920,176 114,121,948 (201,772)
Marketing and distribution expenses (43,489,890) (43,489,890) -
Administrative expenses (9,789,555) (9,789,555) -
Results from operating activities 60,640,731 60,842,503 (201,772)
Finance income 1,716,889 1,716,889 -
Finance costs (2,606,774) (2,606,774) -
Net finance cost (889,885) (889,885) -
Profit before income tax 59,750,846 59,952,618 (201,772)
Income tax expense c (16,742,820) (16,807,387) (64,567) Profit for the year 43,008,026 43,145,231 (137,205)
Earnings per share
Basic earnings per share N54.26 N54.43
Diluted earnings per share N54.26 N54.43
Amounts prepared under
Reference IFRS 15
Under previous
IAS 18 Increase/
(decrease) In thousands of naira
Assets
Right of Return Asset a 351,995 - 351,995
Contract Assets a 93,179 - 93,179
Trade and other receivables a 42,175,062 42,337,918 (162,856)
Total current assets 82,734,317 82,451,999 282,318
Total assets 162,334,422 162,052,104 282,318
Equity
Retained earnings c 49,637,108 49,863,475 (226,367)
Total Equity 50,220,486 50,446,853 (226,367)
Liabilities c
Deferred Tax 11,374,268 11,374,268 -
Total non- current liabilities 19,996,435 19,996,435 -
Contract liabilities a,b 3,858,793 - 3,858,793
Refund liabilities a 615,211 - 615,211
Trade and other payables a,b 60,384,454 64,243,247 (3,858,793)
Current tax payable 23,629,987 23,736,513 (106,526)
Total current liabilities 92,117,501 91,608,816 508,685
Total liabilities 112,113,936 111,605,251 508,685
Total equity and liabilities 162,334,422 162,052,104 282,318
Statement of financial position as at 31 December 2018
Statement of profit or loss for the year ended 31 December 2018
Set out below, are the amounts by which each financial statement line item is affected as at and
for the year ended 31 December 2018 as a result of the adoption of IFRS 15. The first column
shows amounts prepared under IFRS 15 and the second column shows what the amounts would
have been had IFRS 15 not been adopted:
Amounts prepared under
41
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
IFRS 15 adjustment to relating to balance as at 1 January, 2018 (89,162)
IFRS 15 adjustment t relating to balance as at 31 December, 2018 (137,205)
(226,367)
(a)
• Trade Incentives
Before adoption of IFRS 15, The Company provides incentives to certain customers on the
achievement of the performance criteria on the signed incentive guide. Incentives are
credited to the customer’s account, available for purchase of products. Unpaid portion of
trade incentive as at the end of a financial year was accounted for as part of trade and
other payables in the Financial Statements.Under IFRS 15, trade incentives give rise to variable consideration. To estimate the variable
consideration for the expected future incentives, the Company applies the maximum
achievement criteria of set targets. The Sales thresholds contained in the signed incentive
guide primarily drive the selected method that best predicts the amount of variable
consideration. The Company then applies the requirements on constraining estimates of
variable consideration and recognizes a liability for the expected future incentives. Upon
adoption of IFRS 15, the Company reclassified the outstanding incentives included in Trade
and other payables of N2,470 million as at 1 January 2018 to contract liabilities.
As at 31 December 2018, N2,704 million was reclassified from trade and other payables to
contract liabilities in respect of unsettled incentives.
Total IFRS 15 impact on retained earnings as at 31 December, 2018
Under IFRS 15, the consideration received from the customer is variable because the
contract allows the customer to return the products. The Company used the expected value
method to estimate the goods that will not be returned. For goods expected to be returned,
the Company presented a refund liability and an asset for the right to recover products
from a customer separately in the statement of financial position. Upon adoption of IFRS
15, the remeasurement resulted in Refund liabilities of N243 million and Right of return
assets N142million as at 1 January 2018. As a result of these adjustments, deffered tax asset
increased by N32.2 million and Retained earnings as at 1 January 2018 decreased by N68.4
million.
As at 31 December 2018, IFRS 15 increased Right of return assets and Refund liabilities by
N352 million and N615 million, respectively. As a result of this adjustment, tax expense
decreased by N84.2 million and retained earnings decreased by N179 million net of tax.
The nature of the adjustments as at 1 January 2018 and the reasons for the significant changes in
the statement of financial position as at 31 December 2018 and the statement of profit or loss for
the year ended 31 December 2018 are described below:
Sale of goods with variable consideration
Some contracts for the sale of goods provide customers with a right of return and trade
incentives. Before adopting IFRS 15, the Company recognised revenue from the sale of
goods measured at the fair value of the consideration received or receivable, net of returns
and sales returns. If revenue could not be reliably measured, the Company deferred
recognition of revenue until the uncertainty was resolved. Under IFRS 15, rights of return
and sales incentive give rise to variable consideration.
• Rights of return
Reconciliation of movement in retained Earnings
42
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
(b)
( c)
ii
In thousands of naira Adjustments 1 January 2018
Assets
Trade and other receivables b (14,853)
(14,853)
Total assets
Liabilities
Deferred tax liabilities c (4,753)
Total liabilities (4,753)
Total adjustment on equity:
Retained earnings c (10,100)
(10,100)
The nature of these adjustments are described below:
(a) Classification and measurement
IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement
for annual periods beginning on or after 1 January 2018, bringing together all three aspects of the
accounting for financial instruments: classification and measurement; impairment; and hedge
accounting.
The Company applied IFRS 9 prospectively, with an initial application date of 1 January 2018. The
Company has not restated the comparative information, which continues to be reported under IAS
39. Differences arising from the adoption of IFRS 9 have been recognised directly in retained
earnings.
Under IFRS 9, debt instruments are subsequently measured at fair value through profit or loss,
amortised cost, or fair value through OCI. The classification is based on two criteria: the Company’s
business model for managing the assets; and whether the instruments’ contractual cash flows
represent ‘solely payments of principal and interest’ on the principal amount outstanding.
The assessment of the Company’s business model was made as of the date of initial application, 1
January 2018. The assessment of whether contractual cash flows on debt instruments are solely
comprised of principal and interest was made based on the facts and circumstances as at the initial
recognition of the assets.
The classification and measurement requirements of IFRS 9 did not have a significant impact to the
Company. The Company continued measuring at fair value all financial assets previously held at
fair value under IAS 39. The following are the changes in the classification of the Company’s
financial assets: Trade receivables and Other non-current financial assets (i.e., Loan to key management personnel
and Loan to staffs) classified as Loans and receivables as at 31 December 2017 are held to collect
contractual cash flows and give rise to cash flows representing solely payments of principal and
interest. These are classified and measured as Debt instruments at amortised cost beginning 1
January 2018.
Impact of application of IFRS 9 Financial instruments
Other adjustments
In addition to the adjustments described above, other items of the primary financial
statements such as deferred taxes, trade receivables, contract assets and retained earnings
were adjusted as necessary.
Advances received from customers
Cash Customers pay purchase consideration to the Company before the transfer of goods to
the customer. Before the adoption of IFRS 15, the Company presented these advances as
aprt of trade and other payable in the statement of financial position and no interest was
accrued on the advances received. Under IFRS 15, the Company concluded that contract
liability should be recognised for amount received as advances from customer for which
goods are yet to be transferred. Upon the adoption of IFRS 15, the Company reclassified
N1,154 million from trade and other payables (current) to Contract liabilities (current) as at
31 December 2018 in respect of advances received from Customers.
43
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
In thousands of naira
Amortised
cost
IAS 39 measurement category
Loans and receivables
Trade and other receivables note 9.2 31,341,924
31,341,924
(b) Impairment
In thousands of naira
Allowance for
impairment
under IAS 39 as
at 31
December
2017
Remeasurement
ECL under
IFRS 9 as at
1 January 2018
Trade and other receivables 3,521,115 14,853 3,535,968
(c) Other adjustments
In addition to the adjustments described above, other items such as deferred taxes and retained
earnings were adjusted as necessary upon adoption of IFRS 9 as at 1 January 2018.
* The change in carrying amount is a result of IFRS 15 adjustment and additional impairment
allowance. See the discussion on impairment below.
The adoption of IFRS 9 has fundamentally changed the Company’s accounting for impairment
losses for financial assets by replacing IAS 39’s incurred loss approach with a forward-looking
expected credit loss (ECL) approach. IFRS 9 requires the Company to recognise an allowance for
ECLs for all debt instruments not held at fair value through profit or loss and contract assets.
In summary, upon the adoption of IFRS 9, the Company had the following required or elected
reclassifications as at 1 January 2018.
The Company has not designated any financial liabilities at fair value through profit or loss. There
are no changes in classification and measurement for the Company’s financial liabilities.
Upon adoption of IFRS 9 the Company recognised additional impairment on the Company’s Trade
and other receivables of N14.9 mio, which resulted in a decrease in Retained earnings of N10.1 mio
(net of tax) as at 1 January 2018.
Loans and receivables under IAS 39/
Financial assets at amortised cost under
IFRS 9:
IFRS 9 measurement category
44
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
4.2 Other New and amended Standards effective in the current year
IAS 28 Investments in Associates and Joint Ventures -Clarification that measuring investees at fair value through
profit or loss is an investment-by investment choice
The amendments clarifies that:
- An entity that is a venture capital organisation, or other qualifying entity, may elect, at initial recognition on an
investment-by-investment basis, to measure its investments in associates and joint ventures at fair value through
profit or loss.
- If an entity that is not itself an investment entity has an interest in an associate or joint venture that is an
investment entity, the entity may, when applying the equity method, elect to retain the fair value measurement
applied by that investment entity associate or joint venture to the investment entity associate’s or joint venture’s
interests in subsidiaries. This election is made separately for each investment entity associate or joint venture, at
the later of the date on which (a) the investment entity associate or joint venture is initially recognised; (b) the
associate or joint venture becomes an investment entity; and (c) the investment entity associate or joint venture
first becomes a parent.
• The amendments should be applied retrospectively and are effective from 1 January 2018, with earlier
application permitted. If an entity applies those amendments for an earlier period, it must disclose that fact. This
amendment is not applicable to the Company.
In the current year, the Company has applied a number of amendments to IFRS Standards and Interpretations
issued by the International Accounting Standards Board (IASB) that are effective for an annual period that begins on
or after 1 January 2018. Their adoption has not had any material impact on the disclosures or on the amounts
reported in these financial statements.
IFRS 2 Classification and Measurement of Share-based Payment Transactions — Amendments to IFRS 2
The IASB issued amendments to IFRS 2 Share-based Payment that address three main areas: the effects of vesting
conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-
based payment transaction with net settlement features for withholding tax obligations; and accounting where a
modification to the terms and conditions of a share-based payment transaction changes its classification from cash
settled to equity settled.
On adoption, entities are required to apply the amendments without restating prior periods, but retrospective
application is permitted if elected for all three amendments and other criteria are met. The amendments are
effective for annual periods beginning on or after 1 January 2018, with early application permitted. These
amendments did not have any significant impact on the Company.
Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts - Amendments to IFRS 4
The amendments address concerns arising from implementing the new financial instruments standard, IFRS 9,
before implementing IFRS 17 Insurance Contracts, which replaces IFRS 4. The amendments introduce two options
for entities issuing insurance contracts: a temporary exemption from applying IFRS 9 and an overlay approach. The
temporary exemption is first applied for reporting periods beginning on or after 1 January 2018.
An entity may elect the overlay approach when it first applies IFRS 9 and apply that approach retrospectively to
financial assets designated on transition to IFRS 9. The entity restates comparative information reflecting the
overlay approach if, and only if, the entity restates comparative information when applying IFRS 9. These
amendments are not applicable to the Company.
IFRS 1 First-time Adoption of International Financial Reporting Standards
Deletion of short-term exemptions for first-time adopters
• Short-term exemptions in paragraphs E3–E7 of IFRS 1 were deleted because they have now served their intended
purpose.
• The amendment is effective from 1 January 2018. This amendment is not applicable to the Company.
These amendments did not have any significant impact on the Company.
45
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
4.3
IFRS 16 Leases
Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change
in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine
those payments). The lessee will generally recognise the amount of the remeasurement of the lease liability as an
adjustment to the right-of-use asset.
IFRIC 22 addresses how to determine the ‘date of transaction’ for the purpose of determining the exchange rate to
use on initial recognition of an asset, expense or income, when onsideration for that item has been paid or received
in advance in a foreign currency which resulted in therecognition of a non‑monetary asset or non‑monetary liability
(for example, a non‑refundable deposit or deferred revenue).
New and revised IFRS Standards in issue but not yet effective
At the date of authorisation of these financial statements, The Company has not applied the following new and
revised IFRS Standards that have been issued but are not yet effective.
IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement
contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving
the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and
disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to
the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees –
leases of ’low-value’ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12
months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments
(i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e.,
the right-of-use asset). Lessees will be required to separately recognise the interest expense on the lease liability
and the depreciation expense on the right-of-use asset.
IFRIC Interpretation 22 Foreign Currency Transactions and Advance Consideration
The Interpretation specifies that the date of transaction is the date on which the entity initially recognises the
non‑monetary asset or non‑monetary liability arising from the payment or receipt of advance consideration. If
there are multiple payments or receipts in advance, the Interpretation requires an entity to determine the date of
transaction for each payment or receipt of advance consideration.
The Interpretation is effective for annual periods beginning on or after 1 January 2018. Early application of
interpretation is permitted and must be disclosed. However, since the Company’s current practice is in line with the
Interpretation, there was no significant impact on the Company's financial statements.
Transfers of Investment Property — Amendments to IAS 40
The amendments clarify when an entity should transfer property, including property under construction or
development into, or out of investment property. The amendments state that a change in use occurs when the
property meets, or ceases to meet, the definition of investment property and there is evidence of the change in
use. A mere change in management’s intentions for the use of a property does not provide evidence of a change in
use. Entities should apply the amendments prospectively to changes in use that occur on or after the beginning of
the annual reporting period in which the entity first applies the amendments. An entity should reassess the
classification of property held at that date and, if applicable, reclassify property to reflect the conditions that exist
at that date. Retrospective application in accordance with IAS 8 is only permitted if it is possible without the use of
hindsight. Effective for annual periods beginning on or after 1 January 2018. Early application of the amendments is
permitted and must be disclosed. This amendment has no significant effect on the Company's Financial Statement.
46
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
IFRS 17 Insurance Contracts
Amendments to IAS 28: Long-term interests in associates and joint ventures
Lessor accounting under IFRS 16 is substantially unchanged from today’s accounting under IAS 17. Lessors will
continue to classify all leases using the same classification principle as in IAS 17 and distinguish between two types
of leases: operating and finance leases.
IFRS 16 also requires lessees and lessors to make more extensive disclosures than under IAS 17.
The main effect to the Company is the increase of N4.4 billion in property plant and equipment and a
corresponding decrease in prepayment. Management do not expect a significant impact in liabilities or net profit as
all rentals are prepaid and there is currently no right of renewal in any of the Company's leases. The preliminary
assessment indicates that N148 million of the Company's lease arrangements relate to short‑term leases and leases
of low‑value assets.The Company is currently finalising the precise impact of this new standard.
IFRS 16 is effective for annual periods beginning on or after 1 January 2019. Early application is permitted, but not
before an entity applies IFRS 15. A lessee can choose to apply the standard using either a full retrospective or a
modified retrospective approach. The standard’s transition provisions permit certain reliefs.
The amendment clarifies that IFRS 9, including its impairment requirements, applies to long‑term interests.
Furthermore, in applying IFRS 9 to long‑term interests, an entity does not take into account adjustments to their
carrying amount required by IAS 28 (i.e., adjustments to the carrying amount of long‑term interests arising from
the allocation of losses of the investee or assessment of impairment in accordance with IAS 28).
The amendments apply retrospectively to annual reporting periods beginning on or after 1 January 2019.
Earlier application is permitted. Specific transition provisions apply depending on whether the first‑time application
of the amendments coincides with that of IFRS 9.
The directors of the Company do not anticipate that the application of the amendments in the future will have a
significant impact on the Company’s financial statements.
The new Standard establishes the principles for the recognition, measurement, presentation and disclosure of
insurance contracts and supersedes IFRS 4 Insurance Contracts.
The Standard outlines a General Model, which is modified for insurance contracts with direct participation features,
described as the Variable Fee Approach. The General Model is simplified if certain criteria are met by measuring the
liability for remaining coverage using the Premium Allocation Approach.
The General Model will use current assumptions to estimate the amount, timing and uncertainty of future cash
flows and it will explicitly measure the cost of that uncertainty, it takes into account market interest rates and the
impact of policyholders’ options and guarantees.
The implementation of the Standard is likely to bring significant changes to an entity’s processes and systems, and
will require much greater co‑ordination between many functions of the business, including finance, actuarial
and IT.
The Standard is effective for annual reporting periods beginning on or after 1 January 2021, with early application
permitted. It is applied retrospectively unless impracticable, in which case the modified retrospective approach or
the fair value approach is applied.
For the purpose of the transition requirements, the date of initial application is the start if the annual reporting
period in which the entity first applies the Standard, and the transition date is the beginning of the period
immediately preceding the date of initial application. The directors of the Company do not anticipate that the
application of the Standard in the future will have an impact on the Company’s financial statements.
47
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Amendments to IFRS 9: Prepayment Features with Negative Compensation
Amendments to IAS 19: Plan Amendment, Curtailment or Settlement
IFRIC 23 Uncertainty over Income Tax Treatments
IFRIC 23 sets out how to determine the accounting tax position when there is uncertainty over income tax
treatments. The Interpretation requires an entity to:
• determine whether uncertain tax positions are assessed separately or as a group; and
• assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be
used, by an entity in its income tax filings:
– If yes, the entity should determine its accounting tax position consistently with the tax treatment used or planned
to be used in its income tax filings.
– If no, the entity should reflect the effect of uncertainty in determining its accounting tax position.
The Interpretation is effective for annual periods beginning on or after 1 January 2019. Entities can apply the
Interpretation with either full retrospective application or modified retrospective application without restatement
of comparatives retrospectively or prospectively.
The directors of the Company do not anticipate that the application of the amendments in the future will have an
impact on the Company’s financial statements.
The amendments to IFRS 9 clarify that for the purpose of assessing whether a prepayment feature meets the SPPI
condition, the party exercising the option may pay or receive reasonable compensation for the prepayment
irrespective of the reason for prepayment. In other words, prepayment features with negative compensation do
not automatically fail SPPI.
The amendment applies to annual periods beginning on or after 1 January 2019, with earlier application permitted.
There are specific transition provisions depending on when the amendments are first applied, relative to the initial
application of IFRS 9.
The directors of the Company do not anticipate that the application of the amendments in the future will have a
significant impact on the Company’s financial statements.
The amendments clarify that the past service cost (or of the gain or loss on settlement) is calculated by measuring
the defined benefit liability (asset) using updated assumptions and comparing benefits offered and plan assets
before and after the plan amendment (or curtailment or settlement) but ignoring the effect of the asset ceiling
(that may arise when the defined benefit plan is in a surplus position). IAS 19 is now clear that the change in the
effect of the asset ceiling that may result from the plan amendment (or curtailment or settlement) is determined in
a second step and is recognised in the normal manner in other comprehensive income.
The paragraphs that relate to measuring the current service cost and the net interest on the net defined benefit
liability (asset) have also been amended. An entity will now be required to use the updated assumptions from this
remeasurement to determine current service cost and net interest for the remainder of the reporting period after
the change to the plan. In the case of the net interest, the amendments make it clear that for the period post plan
amendment, the net interest is calculated by multiplying the net defined benefit liability (asset) as remeasured
under IAS 19.99 with the discount rate used in the remeasurement (also taking into account the effect of
contributions and benefit payments on the net defined benefit liability (asset)).
The amendments are applied prospectively. They apply only to plan amendments, curtailments or settlements that
occur on or after the beginning of the annual period in which the amendments to IAS 19 are first applied.
The amendments to IAS 19 must be applied to annual periods beginning on or after 1 January 2019, but they can be
applied earlier if an entity elects to do so.
The directors of the Company do not anticipate that the application of the amendments in the future will have a
significant impact on the Company’s financial statements.
48
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Annual Improvements 2015-2017 Cycle (issued in December 2017)
IFRS 11 Joint Arrangements
IFRS 3 Business Combinations
IAS 23 Borrowing Costs
The amendments to IFRS 3 clarify that when an entity obtains control of a business that is a joint operation, the
entity applies the requirements for a business combination achieved in stages, including remeasuring its previously
held interest (PHI) in the joint operation at fair value. The PHI to be remeasured includes any unrecognised assets,
liabilities and goodwill relating to the joint operation. The directors of the Company do not anticipate that the
application of the amendments in the future will have a significant impact on the Company’s financial statements.
IAS 12 – Income taxes
The amendments clarify that an entity should recognise the income tax consequences of dividends in profit or loss,
other comprehensive income or equity according to where the entity originally recognised the transactions that
generated the distributable profits. This is the case irrespective of whether different tax rates apply to distributed
and undistributed profits.
The amendments clarify that if any specific borrowing remains outstanding after the related asset is ready for its
intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating
the capitalisation rate on general borrowings.
Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint
Venture
The amendments to IFRS 10 and IAS 28 deal with situations where there is a sale or contribution of assets between
an investor and its associate or joint venture. Specifically, the amendments state that gains or losses resulting from
the loss of control of a subsidiary that does not contain a business in a transaction with an associate or a joint
venture that is accounted for using the equity method, are recognised in the parent’s profit or loss only to the
extent of the unrelated investors’ interests in that associate or joint venture. Similarly, gains and losses resulting
from the remeasurement of investments retained in any former subsidiary (that has become an associate or a joint
venture that is accounted for using the equity method) to fair value are recognised in the former parent’s profit or
loss only to the extent of the unrelated investors’ interests in the new associate or joint venture.
The effective date of the amendments has yet to be set by the IASB; however, earlier application of the
amendments is permitted.
The directors of the Company do not anticipate that the application of the amendments in the future will have a
significant impact on the Company’s financial statements.
These improvements include:
The amendments to IFRS 11 clarify that when a party that participates in, but does not have joint control of, a joint
operation that is a business obtains joint control of such a joint operation, the entity does not remeasure its PHI in
the joint operation.
All the amendments are effective for annual periods beginning on or after 1 January 2019 and generally require
prospective application. Earlier application is permitted.
The directors of the Company do not anticipate that the application of the amendments in the future will have an
impact on the Company’s financial statements.
49
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Notes to the financial statements
5
5.1
5.1.1 Revenue from contracts with customers
• Determining method to estimate variable consideration and assessing the constraint
• Determining the timing of satisfaction of sales of goods
5.2
5.2.1
Significant accounting judgements, estimates and assumptions
The preparation of financial statements in conformity with IFRSs requires management to make judgements,
estimates and assumptions that affect the application of accounting policies and the reported amounts of assets,
liabilities, income and expenses. Actual results may differ from these estimates. The management of the
Company revises its estimates and assumptions on a regular basis to ensure that they are relevant regarding the
past experience and the current economic and political environment. Estimates and underlying assumptions are
reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected. The accounting for certain provisions, certain financial
instruments and the disclosure of financial assets, contingent assets and liabilities at the date of the financial
statements is judgmental. The items, subject to judgment, are detailed in the corresponding notes to the
financial statements.
In particular, information about significant areas of estimation uncertainty and critical judgements in applying
accounting policies that have the most significant effect on the amount recognised in the financial statements
are discussed below:
Critical accounting judgements
In the process of applying the Company’s accounting policies, management has made the following judgements,
which have the most significant effect on the amounts recognised in the financial statements:
The Company applied the following judgements that significantly affect the determination of the amount and
timing of revenue from contracts with customers:
Certain contracts for the sale of products include a right of return that gives rise to variable consideration. In
estimating the variable consideration, the Company is required to use either the expected value method or
the most likely amount method based on which method better predicts the amount of consideration to
which it will be entitled.
The Company determined that the expected value method is the appropriate method to use in estimating
the variable consideration for the sale of goods with rights of return, given the large number of customer
contracts that have similar characteristics.
Key sources of estimation uncertainty
Provisions for employee benefits
Before including any amount of variable consideration in the transaction price, the Company considers
whether the amount of variable consideration is constrained. The Company determined that the estimates of
variable consideration are not constrained based on its historical experience, business forecast and the
current economic conditions. In addition, the uncertainty on the variable consideration will be resolved
within a short time frame.
The Company concluded that revenue for sales of goods is to be recognised as a point in time; when the
customer obtains control of the goods. The Company assess when control is transfer using the indicators
below:
• The Company has a present right to payment for the goods;
• The Company has transferred physical possession of the asset ;
• The customer has the significant risks and rewards of ownership of the goods; and
• The customer has accepted the asset
The actuarial techniques used to assess the value of the defined benefit plans involve financial assumptions
(discount rate, rate of return on assets, medical costs trend rate) and demographic assumptions (salary increase
rate, employee turnover rate, etc.). The Company uses the assistance of an external independent actuary in the
assessment of these assumptions. For more details refer to note 26.
50
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
5.2.2
5.2.3 Impairment testing
5.2.4
5.2.5
The Company updates its assessment of expected returns periodically and the refund liabilities are adjusted
accordingly. Estimates of expected returns are sensitive to changes in circumstances and the Company’s past
experience regarding returns may not be representative of customers’ actual returns in the future. As at 31
December 2018, the amount recognised as refund liabilities for the expected returns is as astated in note 21
Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount,
which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal
calculation is based on available unobservable inputs that are developed based upon the best information
available under the circumstances, which might include the Company's own data less incremental costs of
disposing of the asset. The value in use calculation is based on a discounted cash flow (DCF) model. The cash
flows are derived from the budget for the next fifteen years and do not include restructuring activities that the
Company is not yet committed to or significant future investments that will enhance the performance of the
assets of the CGU being tested. The recoverable amount is sensitive to the discount rate used for the DCF model
as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. The key
assumptions used to determine the recoverable amount for the different CGUs is disclosed and further explained
in Note 15b.
Provision for expected credit losses (ECL)of trade receivables
Estimating variable consideration for returns
The Company estimates variable considerations to be included in the transaction price for the sale of goods with
rights of return and trade incentives.
The Company developed a statistical model for forecasting sales returns. The model used the historical return
data of each year to come up with expected return percentages. These percentages are applied to determine the
expected value of the variable consideration. Any significant changes in experience as compared to historical
return pattern will impact the expected return percentages estimated by the Company.
The Company’s expected trade incentives are analysed on a per customer basis. Determining whether a
customer will be likely entitled to trade incentive will depend on the customer’s historical incentive entitlement
and accumulated performance to date.
Estimated useful lives and residual values of property, plant and equipment
The Company uses a provision matrix to calculate ECLs for trade receivables. The provision rates are based on
days past due for groupings of various customer segments that have similar loss patterns (i.e., by geography,
product type, customer type and rating, and coverage by letters of credit and other forms of credit insurance).
The provision matrix is initially based on the Company’s historical observed default rates. The Company will
calibrate the matrix to adjust the historical credit loss experience with forward-looking information. For instance,
if forecast economic conditions (i.e., gross domestic product) are expected to deteriorate over the next year
which can lead to an increased number of defaults in the manufacturing sector, the historical default rates are
adjusted. At every reporting date, the historical observed default rates are updated and changes in the forward-
looking estimates are analysed.
The assessment of the correlation between historical observed default rates, forecast economic conditions and
ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast
economic conditions. The Company’s historical credit loss experience and forecast of economic conditions may
also not be representative of customer’s actual default in the future. The information about the ECLs on the
Company’s trade receivables is disclosed in Note 33(aii).
The Company’s management determines the estimated useful lives and related depreciation charge for its items
of property, plant and equipment on an annual basis. The Company has carried out a review of the residual
values and useful lives of property, plant and equipment as at 31 December 2018 and that has not highlighted
any requirement for an adjustment to the residual values and remaining useful lives of the assets for the current
or future periods. For more details refer to note 3c.
The Company applied a statistical model for estimating expected trade incentives. The model uses the historical
purchasing patterns and incentive entitlement of customers to determine the expected incentive percentages
and the expected value of the variable consideration. Any significant changes in experience as compared to
historical purchasing patterns and incentive entitlements of customers will impact the expected incentive
percentages estimated by the Company.
51
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
5.2.6 Measurement of the expected credit loss allowance for financial asset
· Determining criteria for significant increase in credit risk;
· Choosing appropriate models and assumptions for the measurement of ECL;
· Establishing groups of similar financial assets for the purposes of measuring ECL.
6 Operating segments
(a) Basis of segmentation
The measurement of the expected credit loss allowance for financial assets measured at amortised cost is an
area that requires the use of complex models and significant assumptions about future economic conditions and
credit behaviour (e.g. the likelihood of customers defaulting and the resulting losses). Explanation of the inputs,
assumptions and estimation techniques used in measuring ECL is further detailed in Note 31ii, which also sets
out key sensitivities of the ECL to changes in these elements.
A number of significant judgements are also required in applying the accounting requirements for measuring
ECL, such as:
· Establishing the number and relative weightings of forward-looking scenarios for each type of
product/market and the associated ECL; and
Information regarding the results of each reportable segment is included in Note 7. Performance is
measured based on segment profit before income tax, as included in the internal management
reports that are reviewed by the Company’s Board of Directors. Segment profit is used to measure
performance as management believes that such information is the most relevant in evaluating the
results of certain segments relative to other entities that operate within these industries.
Segment Description
Food This includes the production and sale of Maggi, Cerelac, SMA, Nan, Lactogen
and Golden Morn.
Beverages This includes the production and sale of Milo, Chocomilo, Nido, Nescafe, Milo
ready-to-drink (RTD) and Nestlé Pure Life.
The accounting policies of the reportable segments are the same as described in Notes 3.
The Company has two reportable segments, as described below, which are the Company’s strategic business
units. The strategic business units offer different products and services, and are managed separately because
they require different technology and marketing strategies. For each of the strategic business units, the
Company’s Board of Directors (BOD) review internal management reports on a quarterly basis. The following
summary describes the operations in each of the Company’s reportable segments:
52
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Notes to the financial statements
7 Information about reportable segment
In thousands of naira
2018 2017 2018 2017 2018 2017 2018 2017
External Revenues 168,171,774 154,226,251 98,102,847 89,925,160 - 266,274,621 244,151,411
Interest income - - - - 1,716,889 6,239,371 1,716,889 6,239,371
Interest expense - - - - (2,606,774) (15,109,062) (2,606,774) (15,109,062)
Depreciation (4,442,657) (4,123,574) (2,463,630) (2,361,973) - - (6,906,287) (6,485,547)
Impairment loss (1,036,584) - (3,411,892) - - (4,448,476) - Reportable segment profit
before income tax 41,235,697 38,596,540 19,405,034 17,101,833 (889,885) (8,869,691) 59,750,846 46,828,682
In thousands of naira
RevenuesThere are no significant reconciling items between the reportable segment revenue and revenue for the year.
Profit or loss 2018 2017
Total profit or loss for reportable segments 60,640,731 55,698,373
Other corporate expenses and income (889,885) (8,869,691)
Profit before income tax 59,750,846 46,828,682
Other material items 2018
There are no significant reconciling items between other material items for the reportable segments and Company total.
Food Beverage Unallocated Total
Assets and liabilities by reportable segments are not presented to the Chief Operating Decision Maker (Board of Directors) on a regular basis. Therefore, information on
segment assets and liabilities has not been presented.
Reconciliation of reportable segment revenue, profit or loss, assets and liabilities and other material items
53
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
8 Geographical information
In thousands of naira
Revenue
Non-current
assets Revenue
Non-current
assets
Nigeria 262,804,669 79,600,105 241,122,642 74,299,175
Niger 1,481,007 135,773 -
Chad - - -
Togo 66,463 - -
Ghana 1,686,124 2,648,664 -
Senegal - - -
Guinea - - -
Other countries 236,358 244,332 -
Total revenue from contracts with customers 266,274,621 79,600,105 244,151,411 74,299,175
Major customer
9 Revenue
Revenue for the year which arose from sales of goods comprise:
In thousands of naira 2018 2017
Nigeria 262,804,669 241,122,642
Export 3,469,952 3,028,769
Total Revenue 266,274,621 244,151,411
9.1 Disaggregated revenue information
For the year ended 31 December 2018
Food Beverage Total
Goods transferred at a point in time
Total revenue 168,171,774 98,102,847 266,274,621
2018 2017
In presenting information on the basis of geography, segment revenue is based on the geographical location of
the customers and segment assets are based on the geographical location of the assets.
Revenue from one customer does not represent up to 10% of the company's total revenue. Therefore,
information on major customers is not presented.
Disaggregation of revenue—quantitative disclosure
The Company has assessed that the disaggregation of revenue by operating segments is appropriate in meeting
this disclosure requirement as this is the information regularly reviewed by the chief operating decision maker
(CODM) in order to evaluate the financial performance of the entity.
The Company determines that the categories used in the investor presentations can be used to meet the
objective of the disaggregation disclosure requirement in paragraph 114 of IFRS 15, which is to disaggregate
revenue from contracts with customers into categories that depict how the nature, amount, timing and
uncertainty of revenue and cash flows are affected by economic factors.
54
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
9.2 Contract balances
31 December
2018 1 January 2018
In thousands of Naira
Trade and other receivables (Note 22) 42,175,062 31,341,924
Contract assets 93,179 43,177
Contract liabilities (Note 30) 3,858,793 3,387,261
9.3 Performance obligations
Information about the Company’s performance obligations are summarised below:
10 Net finance cost
In thousands of naira 2018 2017
Interest income on bank deposits 1,716,889 6,239,371
Finance income 1,716,889 6,239,371
Interest expense on financial liabilities (2,510,705) (3,940,410)
Net foreign exchange loss (96,069) (11,168,652)
Finance expense (2,606,774) (15,109,062)
Net finance cost (889,885) (8,869,691)
Included in interest expense on financial liabilities measured at amortised cost is interest expense on
intercompany loan amounting to approximately N1,130 million (2017: N2,233 million ) excluding the impact of
foreign exchange differences.
Trade receivables are non-interest bearing and are generally on terms of 14 to 60 days. In 2018, N199,860 was
recognised as provision for expected credit losses on trade receivables. As at 1 January, 2018, trade receivables
was impacted by IFRS 15 (N73,673 ) and IFRS 9 (N14,853) bringing the balance to N31,341,924 (December
2017;N31,430,450)
Contract liabilities include incentives yet to be paid to customers and advances received from cash customers.
This amount was included in trade and other payables in prior year and have now been reclassified to contract
liabilities in current year. Prior year amounts have been regrouped to align with current year presentation. This
does not have any impact on the results.
Sale of goods
The performance obligation is satisfied upon delivery of the product and payment is generally due within the
customers credit days . Some contracts provide customers with a right of return and incentives which give rise to
variable consideration subject to constraint.
A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the
Company performs by transferring goods or services to a customer before the customer pays consideration or
before payment is due, a contract asset is recognised for the earned consideration that is conditional. Upon
adoption of IFRS 15 on 1 January, 2018, contract asset of N43,177 was recognised, this amount was not restated
in the balance sheet but was directly adjusted in retained earnings.
55
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
11 Profit before income tax
(a) Profit before income tax is stated after charging or (crediting):
In thousands of naira Note 2018 2017
Depreciation 15(a) 6,906,287 6,485,547
Impairment 15(a) 4,448,476 -
Auditor’s remuneration 35,000 35,000
Directors’ remuneration 12 (c) 313,438 280,531
Personnel expenses 12 (a) 23,506,643 22,758,609
Loss/(Gain) on property, plant and equipment disposed 358,819 (19,281)
Net foreign exchange loss 10 96,069 11,168,652
General licence fees 34(b) 9,934,947 9,204,212
(b) Expenses by nature
In thousands of naira Note 2018 2017
Depreciation 15(a) 6,906,287 6,485,547
Impairment loss on property, plant and equipment 15(a) 4,448,476 -
Auditor’s remuneration 35,000 35,000
Personnel expenses 12(a) 23,506,643 22,758,609
General licence fees 34(b) 9,934,947 9,204,212
Raw materials and consumables 104,147,275 97,524,898
Distribution expense 9,761,273 8,698,034
Advertising 4,491,770 2,987,477
Sales Promotion 13,488,566 12,437,875
Factory overheads 15,028,619 16,218,612
Other expenses 13,885,034 12,102,773
205,633,890 188,453,038
Summarised as follows:
Cost of Sales 152,354,445 143,280,260
Marketing and distribution expenses 43,489,890 35,157,152
Administrative expenses 9,789,555 10,015,626
205,633,890 188,453,038
56
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
12 Personnel expenses
(a) Personnel expenses for the year comprise of the following:
In thousands of naira 2018 2017
Salaries, wages and allowances 12,300,255 11,322,223
Contributions to compulsory pension fund scheme 1,142,803 1,104,584
Contributions to defined contribution gratuity scheme 1,107,927 1,213,670
Employee short term bonus 944,879 1,470,175
Training, recruitment and canteen expenses 1,421,360 1,319,165
Medical expenses 572,134 495,828
Equity-settled share-based payment transactions 24(iv) 80,326 78,832
Other personnel expenses 5,936,960 5,754,132
11 23,506,644 22,758,609
(b)
2018 2017
N N Number Number
1,400,001 - 1,600,000 - 22
1,600,001 - 1,800,000 20 8
1,800,001 - 2,000,000 - -
2,000,001 - 2,500,000 74 12
2,500,001 - 3,000,000 98 110
3,000,001 - 3,500,000 119 230
3,500,001 - 4,000,000 264 509
4,000,001 - 4,500,000 408 287
4,500,001 - 5,000,000 158 193
5,000,001 - 7,000,000 567 402
7,000,001 and above 479 428
2,187 2,201
The number of full-time persons employed per function as at 31 December was as follows:
2018 2017
Number Number
Production 1,674 1,657
Supply chain 65 70
Sales and marketing 313 318
Administration 135 156
2,187 2,201
Employees of the Company, whose duties were wholly or mainly discharged in Nigeria, received
remuneration (excluding pension costs and certain benefits) in the following ranges:
57
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
(c) Directors remuneration
Remuneration paid to directors of the Company was as follows:
In thousands of naira 2018 2017
Directors' Emoluments:
Non Executive directors 28,200 15,100
Executive directors 285,238 274,431
313,438 289,531
The directors’ remuneration shown above includes:
In thousands of naira 2018 2017
Chairman 13,500 8,300
Highest paid director 210,478 169,616
Other directors received emoluments in the following ranges:
2018 2017
N N Number Number
- 1,000,000 2 2
1,000,001 25,000,000 2 2
25,000,001 35,000,000 - -
Above 35,000,000 1 1
5 5
13 Taxation
(a) Income tax expense
In thousands of naira 2018 2017
Current tax expense
Current period income tax 15,008,378 7,364,786
Current period tertiary education tax 1,266,327 742,171
Reversal of over-provision of prior year tax (547,994) (220,538)
15,726,711 7,886,419
Deferred tax expense
Origination and reversal of temporary differences 1,016,109 5,218,533
Total income tax expense 16,742,820 13,104,952
The tax charge for the year has been computed after adjusting for certain items of expenditure and
income, which are not deductible or chargeable for tax purposes, and comprises:
58
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
(b) Current tax liabilities
In thousands of naira 2018 2017
Movement in current tax liabilities account during the year was as follows
At 1 January 15,098,670 15,489,634
Charge for the year 15,726,711 7,886,419
Payments in the year (7,195,394) (8,277,383)
At 31 December 23,629,987 15,098,670
(c) Reconciliation of effective tax rate
2018 2018 2017 2017
In thousands of naira
Profit for the year 43,008,026 33,723,730
Total income tax expense 16,742,820 13,104,952
Profit excluding income tax 59,750,846 46,828,682
30.00% 17,925,254 30.00% 14,048,605
Non-deductible expenses* 0.36% 213,970 0.12% 55,127
Tax exempt income (0.68%) (407,322) 0.00% -
Tax incentives (0.24%) (140,827) (0.48%) (223,387)
(2.23%) (1,334,516) (1.16%) (545,066)
Other income related taxes 2.12% 1,266,327 1.58% 742,171
Prior year (over)/under provision of CIT (0.92%) (547,994) (0.47%) (220,538)
Tax effect of changes in pioneer tax relief status 0.00% - (1.96%) (918,550)
Other tax differences (0.39%) (232,072) 0.36% 166,590
28.02% 16,742,820 27.98% 13,104,952
14 Earnings and declared dividend per share
a)
Note 2018 2017
N'000 N'000
43,008,026 33,723,730
43,008,026 33,723,730
Number ('000) Number ('000)
24 792,656 792,656
Basic (Naira) 54.26 42.55
Diluted (Naira) 54.26 42.55
(b)
Income tax using the Company’s domestic
tax rate
Earnings from continuing operations for the purpose of basic
earnings per share
Earnings from continuing operations for the purpose of diluted
earnings per share
Weighted average number of ordinary
shares as at 31 December
Diluted earnings per share of N54.26 (2017: N42.55) is based on the profit attributable to ordinary shareholders of
N43,008,026 (2017: N33,723,730), and on the 792,656,252 (2017: 792,656,252) ordinary shares of 50 kobo each,
being the weighted average number of ordinary shares in issue and ranking for dividend during the current and
preceding years after adjustment for the effects of all dilutive Nil (2017: Nil) potential ordinary shares.
Basic earnings and declared dividend per share are based on profit attributable to the owners of the Company for
the year of N43,008,026 (2017: N33,723,130) and declared dividend of N37,651million (2017: N19,816 million)
respectively and on 792,656,252 (2017: 792,656,252) ordinary shares of 50 kobo each, being the weighted average
number of ordinary shares in issue and ranking for dividend during the year.
Recognition of previously unrecognised tax credits
59
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
15 Property, plant and equipment (PPE)
(a) The reconciliation of the carrying amount is as follows:
In thousands of naira
Cost
Balance at 1 January 2017 31,039,341 55,180,142 2,702,459 7,532,352 1,113,753 6,997,036 104,565,083
Additions 317,931 2,517,458 218,150 338,688 20,723 5,302,665 8,715,614
Disposals - (73,440) (281,509) (392,381) (53,371) - (800,701)
Reclassification 521,848 5,050,047 184,827 650,290 111,852 (6,518,866) 0
Balance at 31 December 2017 31,879,120 62,674,207 2,823,927 8,128,949 1,192,957 5,780,835 112,479,996
Balance at 1 January 2018 31,879,120 62,674,207 2,823,927 8,128,949 1,192,957 5,780,835 112,479,995
Additions 380,365 1,350,095 711,490 1,379,449 172,982 8,732,921 12,727,302
Disposals (297,618) (219,697) (265,124) (61,648) (185,701) - (1,029,787)
Reclassification 632,821 2,356,469 247,649 1,698,536 220,640 (5,156,114) (0)
Balance at 31 December 2018 32,594,688 66,161,074 3,517,942 11,145,286 1,400,878 9,357,642 124,177,510
Accumulated depreciation and impairment losses
Balance at 1 January 2017 5,021,569 21,620,076 1,373,257 5,427,984 950,671 - 34,393,557
Depreciation 11 (a) 624,402 4,165,849 516,445 1,055,059 123,792 - 6,485,547
Disposals - (61,907) (270,678) (391,248) (53,218) - (777,051)
Balance at 31 December 2017 5,645,971 25,724,018 1,619,024 6,091,795 1,021,245 - 40,102,053
Balance at 1 January 2018 5,645,971 25,724,018 1,619,024 6,091,795 1,021,245 - 40,102,053
Depreciation 11 (a) 819,408 4,141,967 507,644 1,244,304 192,965 - 6,906,287
Impairment 1,867,843 2,575,092 - 5,541 - - 4,448,476
Disposals (813) (136,768) (260,894) (60,822) (185,533) - (644,830)
Balance at 31 December 2018 8,332,409 32,304,309 1,865,774 7,280,818 1,028,677 - 50,811,987
Carrying amounts
At 1 January 2017 26,017,772 33,560,066 1,329,202 2,104,368 163,082 6,997,036 70,171,526
At 31 December 2017 26,233,149 36,950,189 1,204,903 2,037,154 171,712 5,780,835 72,377,943
At 31 December 2018 24,262,279 33,856,765 1,652,168 3,864,468 372,201 9,357,642 73,365,523
Capital Work
in Progress Total
Note Land and
Buildings
Plant and
Machinery
Motor
Vehicles
Furniture and
Fittings
IT
Equipment
60
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
(b) Impairment loss recognised in property, plant and equipment(i) Abaji Factory
(ii) Extruder
(iii) Schmuker Line
(c) Independent Power Plant
In thousands of naira 2018 2017
Cost 4,243,210 4,216,760
Additions 85,899 26,450
Disposal during the year - -
Accumulated depreciation (1,444,271) (1,212,150)
Carrying amount 2,884,838 3,031,060
(d) Capital commitments
In thousands of naira 2018 2017
Approved and contracted 3,422,287 5,097,267
Approved but not contracted 11,106,471 10,988,234
14,528,758 16,085,501
In the current year, due to the low capacity utilisation of the Abaji water Factory when compared to the
forecast, the Company tested the entire Factory for impairment and recorded an impairment of N3.4 billion in
respect of the assets in the cash generating unit (CGU). Accordingly, management estimated the recoverable
amount of the CGU in the year. The recoverable amount was estimated based on the value in use of the asset
using a discount rate of 17.2% . This impairment loss was recorded in the cost of goods sold in the statement of
profit or loss and other comprehensive income.
The impairment of this asset was triggered by the low capacity utilisation of the asset. The Company tested the
CGU for impairment and an impairment loss of N995 million was recorded. The recoverable amount was
determined based on its value in use using a discount rate of 19.5%. This impairment loss was recorded in the
cost of goods sold in the statement of profit or loss and other comprehensive income.
The impairment of this asset was triggered by the low capacity utilisation of the asset. The Company tested the
CGU for impairment and an impairment loss of N42 million was recorded. The recoverable amount was
determined based on its fair value less cost of disposal. In determining the fair value less cost of disposal,
management has used level 3 fair value hierarchy. The estimated cost of disposal (including dismantling costs)
when set off against the selling price (fair value less costs of disposal)was considered negligible and determined
to be zero. This is based on the assumption that the asset will be sold via a broker for a minimal price, this
reflects the most likely means of disposing the asset as at the date of assessment. This impairment loss was
recorded in the cost of goods sold in the statement of profit or loss and other comprehensive income.
Included as part of property plant and equipment is independent power plant. The carrying amount of the
independent power plant at the end of the year is presented below:
Capital expenditure commitments at the year-end authorised by the Board of Directors comprise:
61
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
16 Intangible assets
The movement on this account during the year was as follows:
In thousands of naira Note Software
Cost
Balance at 1 January 2017 526,950
Balance at 31 December 2017 526,950
Balance at 1 January 2018 526,950
Balance at 31 December 2018 526,950
Amortisation
Balance at 1 January 2017 526,950
Amortisation for the year 11 (a) -
Balance at 31 December 2017 526,950
Balance at 1 January 2018 526,950
Amortisation for the year 11 (a) -
Balance at 31 December 2018 526,950
Carrying amounts
Balance at 1 January 2017 -
Balance at 31 December 2017 -
Balance at 31 December 2018 -
There were no additions or disposal during the year.
17 Long term receivables
2018 2017
1,989,120 1,921,232
247,985 -
2,237,105 1,921,232
18 Prepayments
In thousands of naira 2018 2017
Rent prepaid 4,497,437 524,370
Insurance prepaid 517,837 267,308
Other prepayment 210,228 1,233,668
5,225,502 2,025,346
2018 2017
Current Asset 1,228,025 1,791,176
Non-current Asset 3,997,477 234,170
5,225,502 2,025,346
Long term receivables represent long-term portion of loans granted to the Company’s employees and amount
receivable from customers on the trade assets deployed which are expected to be paid after one year from the date of
the financial statements. This is analysed below:
Prepayment comprises:
Other prepayment represents payments made for goods and services which will be consumed within the next financial
year.
Amount receivable from Customers on account of trade assets deployed
Long term Staff receivable
Prepayments are analysed into short and long term assets based on the period covered by the prepayment:
62
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
19 Deferred tax liabilities
Recognised deferred tax (assets)/liabilities
Deferred tax liabilities are attributable to the following:
Liabilities Net
In thousands of naira 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17 31-Dec-18 31-Dec-17
Property, plant and equipment - - 12,760,600 13,647,062 12,760,600 13,647,062
Employee benefits (864,215) (728,295) - - (864,215) (728,295)
Unrealised exchange loss (472,585) (2,479,992) - - (472,585) (2,479,992)
Share based payment (49,532) (33,904) - - (49,532) (33,904)
Tax (asset)/liabilities (1,386,332) (3,242,191) 12,760,600 13,647,062 11,374,268 10,404,871
Net tax liabilities (1,386,332) (3,242,191) 12,760,600 13,647,062 11,374,268 10,404,871
Movement in temporary differences during the year
In thousands of naira
Property, plant and equipment 12,132,646 1,514,416 - 13,647,062 - 13,647,062 (886,462) - 12,760,600
Employee benefits (435,194) (293,101) - (728,295) - (728,295) (135,920) - (864,215)
Unrealised exchange difference (6,493,223) 4,013,231 - (2,479,992) - (2,479,992) 2,007,407 - (472,585)
Share based payment (17,891) (16,013) - (33,904) - (33,904) (15,628) - (49,532)
Trade and other receivables - - - - (4,753) (4,753) 4,753 - -
Right of return asset - - - - (41,959) (41,959) 41,959 - -
5,186,338 5,218,533 - 10,404,871 (46,712) 10,358,159 1,016,109 - 11,374,268
At 31 December 2018 (2017: Nil), there was no unrecognised deferred tax asset or liability.
Recognised in
profit or loss
Recognised in
other
comprehensi
ve income
Balance 31
December
2018
Effect of
adoption of
new accounting
standards
Balance 1
January 2017
Assets
Balance 1
January 2017
Recognised in
profit or loss
Recognised in
other
comprehensive
income
Balance 31
December 2017
63
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
20 Inventories
In thousands of naira 2018 2017
Raw and packaging materials 8,112,500 10,888,704
Product in process 841,045 1,011,414
Finished products 6,797,789 8,005,726
Engineering spares 4,141,920 3,910,687
Goods in transit 3,230,766 93,772
23,124,020 23,910,303
21 Right of return assets and refund liabilities
In thousands of naira
31 December
2018
1 January
2018
Right to returned goods asset 351,995 142,470
Refund liabilities
Arising from rights of return 615,211 243,095
22 Trade and other receivables
In thousands of naira Note 2018 2017
Trade receivables 22(a) 18,897,443 13,449,878
Loans to key management personnel 22(b) 17,181 39,754
Staff loans 22(b) 2,469,219 2,361,785
Trade receivables due from related parties 34(e)(i) 2,533,699 2,768,999
Deposit with Company registrars for dividend 24(b)ii 2,154,383 1,724,951
Allowance for expected credit losses 31(a)(ii) (3,709,060) (3,521,115)
22,362,865 16,824,253
Advance payment to suppliers 11,778,913 10,380,123
Deposit for Import 9,365,047 5,248,908
Other receivables 905,342 898,399
44,412,167 33,351,682
Non-current - reclassified to long term receivables 17 2,237,105 1,921,232
Current 42,175,062 31,430,450
44,412,167 33,351,682
The value of raw and packaging materials, changes in finished products and product in process
consumed during the year and recognised in cost of sales amounted to N104.147 billion (2017:
N97.524 billion). In 2018, the write-down of inventories to net realisable value amounted to
N2.295 billion (2017: N1.413 billion) and the movement is included in cost of sales.
The right to returned goods asset represents the Company’s right to recover products from
customers where customers exercise their right of return under the Company’s 180-day returns
policy. The Company uses its accumulated historical experience to estimate the number of returns
in a year using the expected value method. See Note 4.1. Upon adoption of IFRS 15 on 1 January,
2018, right of returned goods asset of N142,470 was recognised. This amount was not restated but
rather adjusted through retained earnings. Consequently, a refund liability of N243,095 was
recognised as amount payable in respect of the returned goods asset. This was also adjusted
through retained earnings.
64
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
22(a) Trade receivables
In thousands of naira 2018 2017
Receivables from third-party customers 18,897,443 13,449,878
Allowance for expected credit losses (3,705,990) (3,521,115)
15,191,453 9,928,763
22(b) Loans to key management personnel and staff loans
In thousands of naira 2018 2017
Loans to key management personnel 17,181 39,754
Staff loans 2,469,219 2,361,785
2,486,400 2,401,539
Allowance for expected credit losses (3,070) -
2,483,330 2,401,539
23 Cash and cash equivalents
In thousands of naira 2018 2017
Cash and bank balances 10,898,112 11,583,410
Short term investment 4,863,924 3,555,444
Cash and cash equivalents in the statement of financial position 15,762,036 15,138,854
Bank overdrafts used for cash management purposes (1,393,678) (3,714,087)
Cash and cash equivalents in the statement of cash flows 14,368,358 11,424,767
24 Capital, reserves and dividends
(a) Ordinary shares
(i) Authorised ordinary shares of 50k eachTerms and conditions of the Restricted Share Unit Plan
In number of shares 2018 2017
At 31 December 792,656,252 792,656,252
The Company’s exposure to credit and market risks, and impairment losses related to trade and
other receivables are disclosed in Note 31.
For terms and conditions relating to related party receivables, refer to Note 34.
The Company’s exposure to credit risk for cash and cash equivalents and impairment losses
related to short-term investment are disclosed in Note 31.
65
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
(ii) Issued and fully paid ordinary shares of 50k each
In number of shares 2018 2017
At 31 December 792,656,252 792,656,252
Nominal value (In thousands of naira) 396,328 396,328
(iii) Share premium
In thousands of Naira 2018 2017
The premium on the 792,656,250 ordinary shares of 50 kobo each is as follows:
Share premium 32,262 32,262
(iv) Share based payment reserves
Terms amd conditions of the Restricted Share Unit Plan
The terms and conditions relating to the grants of the PSUP are as follows;
Shares awarded to key management on 3 March 2016 4111 3 years' service
Shares awarded to key management on 1 March 2017 3442 3 years' service
Shares awarded to key management on 1 March 2018 4028 3 years' service
The movement in share based payment is as follows:
In thousands of naira 2018 2017
At 1 January 147,236 126,480
Share based payment contribution 80,326 78,832
Share based payment recharge (72,774) (58,076)
At 31 December 154,788 147,236
Total share based payment expense recognised in the profit or loss for the year amounted to N80,326,199 (2017:
N78,832,117).
Holders of these shares are entitled to dividends as declared from time to time and are entitled to one vote per
share at the general meetings of the Company.
The share based payment reserve comprises the cumulative weighted average fair value of performance stock unit
plan granted to deserving employees which have not vested at the end of the year.
The Company’s ultimate holding company, Nestlé Switzerland (Nestlé S.A.) operates an Equity Incentive Scheme
for its management employees around the world known as the Performance Share Unit Plan (PSUP). Under the
PSUP, Nestlé S.A. awards Performance Stock Units (PSU) to employees that entitle participants to receive freely
disposable Nestlé S.A. shares or an equivalent amount in cash at the end of a three-year restriction period.
Grant date/employees entitled
Number of
instruments Vesting Conditions
The fair value of the PSU is determined on the basis of the market price of Nestlé S.A. shares at grant date,
adjusted for the present value of dividends that participants are not entitled to receive during the restricted period
of 3 years. The weighted average fair value at the date of exercise of the restricted stock units granted in 2018 is
N118,500,287 (2017:N85,215,108)
66
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
(b) Dividends
(i) The following dividends were declared by the Company during the year:
Per Share (N) N'000 Per Share (N) N'000
Final dividend 27.50 21,798,046 10.00 7,926,563
Interim dividend 20.00 15,853,126 15.00 11,889,843
47.50 37,651,172 25.00 19,816,406
2018 2017
Naira per qualifying ordinary share N38.50 N27.50
(ii) Movement in dividend payable
In thousands of naira Notes 2018 2017
At 1 January 12,554,561 4,238,681
Declared dividend 37,651,172 19,816,406
Unclaimed dividend transferred to retained earnings (77,165) (72,022)
Payments (44,554,195) (11,428,504)
At 31 December 29 5,574,373 12,554,561
25 Loans and borrowings
(a)
Loans and borrowing as at 31 December is as follows:
In thousands of naira 2018 2017
Secured bank loans 1,347,399 2,462,140
Loans from related party 5,600,553 18,015,770
6,947,952 20,477,910
2018 2017
Current liabilities 1,026,458 10,913,246
Non-current liabilities 5,921,494 9,564,664
6,947,952 20,477,910
As at 31 December 2018, N2.154 billion (2017: N1.725 billion) of the total dividend payable is held with the Company’s
registrar, Greenwich Registrars and Data Solutions Limited Registrars Nigeria Limited. The balance of 3.420 billion
represents unclaimed dividend (2017: N3.066 billion) which was returned to the Company by the Registrar and has
been invested in treasury bills.
This note provides information about the contractual terms of the Company’s interest-bearing loans and
borrowings. For information about the Company’s exposure to interest rate, foreign currency and liquidity risks,
see note 31.
Loans and borrowings are analysed into short and long term liabilities based on the time the repayment obligation
falls due as follows:
2018 2017
Total dividends represents the interim dividend declared during the year plus the final dividend proposed for the
preceding year, but declared in the current year.
After the respective reporting dates, the following dividends were proposed by the board of directors. The
dividends have not been recognised as liabilities and there are no tax implications.
67
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Terms and debt repayment schedule
(b) Terms and conditions of outstanding loans were as follows:
In thousands of naira Notes Currency Face Value Face Value
Loan from related party (i) USD LIBOR + 4.2% 2018 - - 9,797,149 9,797,149
Loan from related party (ii) USD LIBOR + 7.6% 2017 - - 2,746,620 2,746,620
Loan from related party (iii) USD LIBOR + 7.83% 2024 5,600,553 5,600,553 5,472,000 5,472,000
Secured bank loan (iv) NGN 5.50% 2018 - - 163,636 163,636
Secured bank loan (v) NGN 10% 2020 1,347,399 1,347,399 2,298,505 2,298,505
Total Interest bearing liabilities 6,947,952 6,947,952 20,477,910 20,477,910
The bank loans are secured by a negative pledge on the Company’s assets in line with their relative exposures.
(i)
(ii)
(iii)
(iv)
(v)
2018 2017
Nominal
interest rate
Year of
maturity
Carrying amount Carrying amount
A loan facility of US$ 26 million was made available to the Company in 2011 by Nestlé Treasury Centre – Middle East & Africa Limited. The Company made a
first drawdown of US$15 million in October 2011 and a final drawdown of US$11 million in March 2012 . The loan has tenure of 7 years (inclusive of a
moratorium period of 2 years on interest payments only) commencing from October 2011. The facility which is unsecured attracts interest at 6 months USD
LIBOR plus a margin of 300 basis points. The loan was fully repaid during the current year.
A working capital loan facility of US$ 40 million was also made available to the Company in 2016 by Nestlé S.A. with a tenure of one year. The loan was fully
drawn down as at 31 December 2016. It was fully repaid during the current year.
An additional US$ 30 million was approved for the Company by Nestle S.A. in 2017 of which only US$15.2 million was drawn down as at 31 December,
2017.The loan has tenor of 7 years (inclusive of moratorium period of 2 years on interests payment only) commencing from April 2017. The facility which is
unsecured attracts interest at 3 months USD Libor plus a margin of 783 basis points.
A N1.2 billion facility under the CBN Power and Aviation Intervention Fund (PAIF) with a tenor of 7 years, commencing from July 2011. The facility is priced
at 5.5%. The total facility was fully drawn down in 2011. The loan was fully repaid during the current year.
A N5.7 billion facility under the Bank of Industry (BOI) Scheme with a tenure of 7 years (inclusive of a moratorium period of 1 year on principal only)
commencing from May 2013. The facility was priced at 10.0%. The facility was fully drawn down in 2013.
68
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
(c) Reconciliation between opening and closing balances of the loan and borrowings is shown below
2018 2017
At 1 January 20,477,910 50,514,716
Addition - 4,886,800
Repayment -- Intercompany loan (12,543,788) (41,241,015)
Repayment -- Bank loan (1,114,742) (1,502,620)
Accrued Interest 75,353 438,506
Exchange loss 53,219 7,381,523
At 31 December 6,947,952 20,477,910
Analysed as follows
Current 1,026,458 10,913,246
Non-Current 5,921,494 9,564,664
6,947,952 20,477,910
69
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
26 Employee Benefits
Other long term employee benefits
In thousands of Naira 2018 2017
Balance at 1 January 2,275,921 2,103,744
Expense for the year 699,084 556,369
Payments during the year (274,332) (384,192)
Balance at 31 December 2,700,673 2,275,921
Actuarial assumptions
Financial Assumptions
2018 2017
Long term average Discount rate (p.a.) 16% 14%
Average Pay Increase (p.a.) 12% 10%
Demographic assumptions
Mortality in Service
Sample age
2018 2017
25 7 7
30 7 7
35 9 9
40 14 14
45 26 26
Withdrawal from Service
Age Band
2018 2017
Less than or equal to 30 4.0% 4.0%
31-34 4.0% 4.0%
35 – 39 3.0% 3.0%
40 – 54 2.0% 2.0%
55 – 59 1.0% 1.0%
Other long term employee benefits represents the present value of unfunded long service award given to
deserving members of staff of the Company.
The movement in the present value of the other long term employee benefits during the year was as
follows:
Principal actuarial assumptions at the reporting date (expressed as weighted averages) fall under two broad
categories. These assumptions depict management’s estimate of the likely future experience of the
Company.
The rates of mortality assumed for employees are the rates published in the A67/70 Ultimate Tables,
published jointly by the Institute and Faculty of Actuaries in the UK. This is due to unavailability of published
reliable demographic data in Nigeria.
Number of deaths in year out of 10,000 lives
Rate
Assumptions regarding future mortality are based on published statistics and mortality tables.
Withdrawal from service means retirement; voluntary or compulsory disengagement from service.
70
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Sensitivity analysis
31 December 2018
Effect in thousands of Naira Increase Decrease
Discount Rate (1% movement) (140,302) 154,861
Future salary growth (1% movement) 161,633 (148,075)
Life Expectancy (1% movement) (7,804) 7,013
The table below indicates the maturity profile for defined benefit obligations:
In thousands of Naira 2018
Within the next 12 months (next annual reporting period) 381,707
Between 2 and 5 years 1,872,249
Beyond 5 years 3,827,659
Total expected payments 6,081,615
27 Pension payable
In thousands of Naira 2018 2017
Balance at 1 January 15,266 5,328
Charged for the year 2,244,733 1,988,275
Payments during the year (2,248,209) (1,978,337)Balance at 31 December 11,790 15,266
Pension Payable is included in other payables and accruals in Note 29
28 Provisions
In thousands of naira Tax
2018 2017
Balance at 1 January 898,868 596,747
Provisions made during the year 422,284 397,997
Provisions used during the year (112,232) (95,876)
Balance at 31 December 1,208,920 898,868
Current 1,208,920 898,868
1,208,920 898,868
Provisions represent management's estimate of the Company's probable exposure to tax and other
liabilities at the end of the year.
Employee benefit obligation
The balance on the pension payable account represents the amount due to the Pension Fund
Administrators which is yet to be remitted at the year end. The movement on this account during the year
was as follows:
Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding
other assumptions constant, would have affected the employee benefit obligation by the amount shown
below.
71
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
29 Trade and other payables
In thousands of naira Note 2018 2017
Trade payables 27,086,058 14,209,270
Other payables and accruals 15,926,161 9,858,321
Trade payables due to related parties 34(e)(i) 11,797,862 9,046,212
Dividend payable 24(b)(ii) 5,574,373 12,554,561
60,384,454 45,668,363
30
2018 2017
In thousands of naira
Customer's down payment 1,154,109 916,931
Trade incentives 2,704,684 2,470,330
3,858,793 3,387,261
31 Financial instruments
(a) Financial Risk Management
• credit risk (see (a)(ii)
• liquidity risk (see (a)(iii)
• market risk (see (a)(iv)
• operational risk (see (a)(v)
(I) Risk management framework
The Company’s exposure to currency and liquidity risk related to trade and other payables is disclosed in
note 31.
The Board of Directors has overall responsibility for the establishment and oversight of the Company’s
risk management framework. The Board has established the Risk Management Committee, which is
responsible for developing and monitoring the Company’s risk management policies. The committee
reports regularly to the Board of Directors on its activities.
The Company’s risk management policies are established to identify and analyse the risks faced by the
Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk
management policies and systems are reviewed regularly to reflect changes in market conditions and
the Company’s activities. The Company, through its training and management standards and
procedures, aims to develop a disciplined and constructive control environment in which all employees
understand their roles and obligations.
The Company has exposure to the following risks from its use of financial instruments:
Contract Liabilities
Certain liabilities arose as a result of the Company's contract with the Customers in line with IFRS 15 as
analysed below. These amounts were stated as part of trade and other payables in prior year when
revenue was reported under IAS 18. Prior year amounts have been regrouped to align with current year
presentation. This does not have any impact on the results.See note 4.1
72
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
(II) Credit risk
Management has established a customer/distributor activation process under which each new customer
is analysed individually for credit worthiness before the Company’s distributorship agreement standard
payment and delivery terms and conditions are offered to seal the distributorship arrangement. The
Company’s review includes external ratings, when available, and in some cases bank references.
Purchase limits are established for each customer, which represents the maximum open amount
without requiring approval from the National Sales Manager (NSM); these limits are reviewed quarterly.
Customers that fail to meet the Company’s benchmark creditworthiness may transact with the Company
only on a cash or prepayment basis. The Company’s payment and delivery terms and conditions offered
to customers provide various credit limits based on individual customers.
The Company also initiated a financing tripartite agreement with the Company’s bankers and some
selected customers. The objective of this agreement is to ensure consistent cash inflow from customers
for goods purchased. The Company’s most significant customers have been activated on this financing
scheme for over two years and this has reduced losses incurred on trade receivables.
In monitoring customer credit risk, customers are grouped according to their credit characteristics,
including whether they are an individual or legal entity, whether they are a wholesale, retail or end-user
customer, geographic location, industry, aging profile, maturity and existence of previous financial
difficulties.
Trade and other receivables relate mainly to the Company’s wholesale customers. Customers that are
graded as “high risk” are placed on a restricted customer list and monitored by the NSM, and future
sales are made on a cash or prepayment basis.
In order to minimise credit risk, the Company has tasked its Credit Management Committee to develop
and maintain the Company’s credit risk gradings to categorise exposures according to their degree of
risk of default. The credit rating information is supplied by independent rating agencies where available
and, if not available, the Credit Management Committee uses other publicly available financial
information and the Company’s own trading records to rate its major customers and other debtors. The
Company’s exposure and the credit ratings of its counterparties are continuously monitored and the
aggregate value of transactions concluded is spread amongst approved counterparties.
The Company’s principal exposure to credit risk is influenced mainly by the individual characteristics of
each customer.
The Company Audit Committee oversees how management monitors compliance with the Company’s
risk management policies and procedures, and reviews the adequacy of the risk management
framework in relation to the risks faced by the Company. The Company Audit Committee is assisted in
its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk
management controls and procedures, the results of which are reported to both senior Management
and the Audit Committee.
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or
customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating
activities (primarily trade receivables) and from its financing activities, including deposits with banks and
financial institutions and other financial instruments.
73
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
The carrying amount of financial assets represents the maximum credit exposure.
i Exposure to credit risk
The maximum exposure to credit risk at the reporting date was:
In thousands of naira Note 2018 2017
Trade and other receivables 22 22,362,865 16,824,253
Cash 23 15,762,036 15,138,854
38,124,901 31,963,106
In thousands of naira Note 2018 2017
Distributors 22 15,191,453 9,928,763
Related parties 22 2,533,699 2,768,999
Loans to key management personnel 22 17,147 39,754
Staff loans and advances 22 2,466,182 2,361,785
Registrar 22 2,154,383 1,724,951
22,362,866 16,824,253
The Company’s most significant customer accounts for N713.9million (2017: N520 million) of the trade
and other receivables carrying amount at 31 December 2018 .
The Company has no significant concentration of credit risk, with exposure spread over a large number
of parties. Cash and cash equivalents are placed with banks and financial institutions which are
regulated.
The Company has an order approval matrix which provides guidelines for the various approval
authorisation limits for customers, based on the risk grading of the customer and the percentage by
which the customer exceeds his credit limit. The approval responsibility is allocated to the Financial
Accounting Manager, Finance and Control Director and other Senior officials.
The Company establishes an allowance for impairment that represents its estimate of incurred losses in
respect of trade and other receivables. The main components of this allowance are a specific loss
component that relates to individually significant exposures, and a collective loss component
established for groups of similar assets in respect of losses that have been incurred but not yet
identified. The collective loss allowance is determined based on historical data of payment statistics for
similar financial assets.
Carrying amount
The maximum exposure to credit risk for trade and other receivables at the reporting date by type of
counterparty was:
Carrying amount
Credit risk from balances with banks and financial institutions is managed by Nestle Treasury Center in
accordance with the Company’s policy. Investments of surplus funds are made only with approved
counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are
reviewed periodically, and may be updated at any point in the year subject to approval of the Asset and
Liability Management Committee. The limits are set to minimise the concentration of risks and therefore
mitigate financial loss through a counterparty’s potential failure to make payments.
74
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
ii Impairment losses
Trade receivables
In thousands of naira Current 1-30 days 30 -60 days 61 - 90 days 91-120 days >120 days Total
Expected credit loss rate 0.1% 0.1% 0.1% 50.4% 75.6% 100.0%
9,914,792 5,098,978 166,779 31,428 63,450 3,622,016 18,897,443
- Expected credit loss (13,242) (6,721) (217) (15,847) (47,947) (3,622,016) (3,705,990)
9,901,550 5,092,257 166,562 15,581 15,503 - 15,191,453
In thousands of naira Current 1-30 days 30 -60 days 61 - 90 days >91 days >120 days Total
Expected credit loss rate 0.1% 0.1% 0.1% -50.1% 100.0% 100.0%
6,694,828 3,078,063 147,753 16,240 12,788 3,500,207 13,449,878
Expected credit loss (8,703) (4,001) (192) (8,131) (12,788) (3,500,207) (3,534,022)
6,686,125 3,074,062 147,560 8,109 - - 9,915,856
Set out below is the information about the credit risk exposure on the Company’s trade receivables as at 31 December 2018 using a provision matrix:
Trade receivables
Estimated total gross
carrying amount at
default
For trade receivables, the Company applied the simplified approach in computing ECL. Therefore, the Company does not track changes in credit risk, but instead recognises a loss
allowance based on lifetime ECLs at each reporting date. An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses
(ECL). The provision rates are based on days past due for groupings of various customer segments with similar loss patterns (i.e., by geographical region, customer type and rating,
and coverage by letters of credit or other forms of credit insurance). The calculation reflects the probability-weighted outcome, the time value of money and reasonable and
supportable information that is available at the reporting date about past events, current conditions and forecasts of future economic conditions. The maximum exposure to
credit risk at the reporting date is the carrying value of each class of financial assets disclosed in Note 31(i). The Company does not hold collateral as security.
31 December 2018
31 December 2017Trade receivables
Days past due
Estimated total gross
carrying amount at
default
Days past due
75
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Set out below is the movement in the allowance for expected credit losses of trade receivables:
In thousands of Naira 2018
Balance as at 1 January 2018 under IAS 39 3,521,115
Adjustment upon application of IFRS 9 12,907
Balance as at 1 January 2018 – As restated 3,534,022
Provision for expected credit losses 199,860
Write-off (27,891)
Changes in credit risk parameters -
Balance at 31 December 3,705,991
The aging of trade receivables as at 31 December 2017 was: Gross Impairment
In thousands of naira 2017 2017
Not Past due (0-30 days) 6,694,828 - Past due (>30 days) 6,755,050 (3,521,115)
13,449,878 (3,521,115)
The movement in the allowance for impairment under IAS 39 for trade receivables during the year was as follows:
In thousands of Naira 2017
Balance at 1 January 2017 3,333,405
Prior year impairment loss reversed (120,038)
Impairment loss recognized 307,748
Balance at 31 December 2017 3,521,115
The impairment loss as at 31 December 2018 relates to several customers that are not expected to be able to pay their outstanding balances, mainly due to economic
circumstances. The Company believes that the unimpaired amounts that are past due are still collectible, based on historical payment behavior and extensive analysis of the
underlying customers’ credit ratings. The impairment loss is included in administrative expenses.
Based on historical default rates, the Company believes that, apart from the above, no additional impairment allowance is necessary in respect of trade receivables past due. As at
the date of the approval of the financial statements.
76
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Expected credit loss measurement - other financial assets
The Company applied the general approach in computing expected credit losses (ECL) for its other receivables. The Company recognises an allowance for expected credit losses
(ECLs) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the
contract and all the cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate.
ECLs are recognised in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses
that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit
risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
The ECL is determined by projecting the PD, LGD and EAD for each future month and for each individual exposure. These three components are multiplied together and adjusted
for the likelihood of survival (i.e. the exposure has not prepaid or defaulted in an earlier month). This effectively calculates an ECL for each future month, which is then discounted
back to the reporting date and summed. The discount rate used in the ECL calculation is the original effective interest rate or an approximation thereof.
The 12-month and Lifetime PDs are derived by mapping the internal rating grade of the obligors to the PD term structure of an external rating agency for all asset classes. The 12-
month and lifetime EADs are determined based on the expected payment profile, which varies by product type. The assumptions underlying the ECL calculation – such as how the
maturity profile of the PDs, etc. – are monitored and reviewed on a regular basis. There have been no significant changes in estimation techniques or significant assumptions
made during the reporting period. The significant changes in the balances of the other financial assets including information about their impairment allowance are disclosed
below respectively.
The Company considers a financial asset in default when contractual payments are 90 days past due. However, in certain cases, the Company may also consider a financial asset
to be in default when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full before taking into account any
credit enhancements held by the Company. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows. Based on
management's assessment, there has not been a significant increase in credit risk of investment in treasury bills and expected credit loss is immaterial and hence no provision was
made for expected credit loss.
77
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Analysis of inputs to the ECL model under multiple economic scenarios
31 December 2018 Key drivers ECL ScenarioAssigned
probabilities2019 2020 2021
% % % %
GDP growth %
Upside 10% 0.26 0.29 0.32
Base case 80% 0.20 19.00 0.15
Downside 10% 0.14 0.11 0.08
Inflation rate %
Upside 10% 26.00 24.00 22.00
Base case 80% 31.00 32.00 33.00
Downside 10% 34.00 36.00 38.00
Crude oil price%
Upside 10% 56.00 59.00 62.00
Base case 80% 55.00 57.00 62.00
Downside 10% 44.00 41.00 38.00
An overview of the approach to estimating ECLs is set out in Note 3.b(ii) Summary of significant accounting policies and in Note 6 Significant accounting judgements, estimates
and assumptions. To ensure completeness and accuracy, the Company obtains the data used from third party sources (Central Bank of Nigeria, Standards and Poor's etc.) and a
team of expert within its credit risk department verifies the accuracy of inputs to the Company's ECL models including determining the weights attributable to the multiple
scenarios. The following tables set out the key drivers of expected loss and the assumptions used for the Company’s base case estimate, ECLs based on the base case, plus the
effect of the use of multiple economic scenarios as at 31 December 2017 and 31 December 2018.
The tables show the values of the key forward looking economic variables/assumptions used in each of the economic scenarios for the ECL calculations. The figures for
“Subsequent years” represent a long-term average and so are the same for each scenario.
78
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
1 January 2018 Key drivers ECL ScenarioAssigned
probabilities2018 2019 2020
% % %
GDP growth %
Upside 11% 0.23 0.26 0.29
Base case 79% 0.20 0.20 19.00
Downside 10% 0.17 0.14 0.11
Inflation rate %
Upside 11% 28.00 26.00 24.00
Base case 79% 30.00 31.00 32.00
Downside 10% 32.00 34.00 36.00
Crude oil price%
Upside 11% 53.00 56.00 59.00
Base case 79% 50.00 55.00 57.00
Downside 10% 47.00 44.00 41.00
31 December 2018Management
loanStaff loan Total
-
Upside (10%) 3 324 327
Base (80%) 27 2,410 2,437
Downside (11%) 4 302 306
Total 34 3,036 3,069
The following tables outline the impact of multiple scenarios on the allowance:
79
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
1 January 2018management
loanStaff loan Total
-
Upside (10%) 7 207 214
Base (79%) 50 1,468 1,518
Downside (11%) 7 207 214
Total 64 1,882 1,946
Loan to key management personnel
Stage 1 Stage 2 Stage 3 Total
In thousands of naira Individual Individual
Gross carrying amount as at 1 January 2018 39,754 39,754
New asset purchased 10,400 10,400
Asset derecognised or repaid (excluding write offs) (32,973) (32,973)
17,181 17,181
Stage 1 Stage 2 Stage 3 Total
In thousands of Naira Individual Individual
ECL allowance as at 1 January 2018 64 0 0 64
New asset purchased 34 0 0 34
Asset derecognised or repaid (excluding write offs) (64) 0 0 (64)
At 31 December 2018 34.00 - - 34
Loan to staff
At 31 December 2018
An analysis of changes in the gross carrying amount and the corresponding ECL allowances is, as follows:
An analysis of changes in the gross carrying amount and the corresponding ECL allowances is, as follows:
80
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Stage 1 Stage 2 Stage 3 Total
In thousands of naira Individual Individual
Gross carrying amount as at 1 January 2018 2,361,785 - - 2,361,785
New asset purchased 1,658,094 - - 1,658,094
Asset derecognised or repaid (excluding write offs) (1,531,209) - - (1,531,209)
2,488,670 2,488,670
Stage 1 Stage 2 Stage 3 Total
In thousands of Naira Individual Individual
ECL allowance as at 1 January 2018 1,882 - - 1,882
New asset purchased 3,036 - - 3,036
Asset derecognised or repaid (excluding write offs) (1,882) - - (1,882)
At 31 December 2018 3,036 - - 3,036
(III) Liquidity risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another
financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under
both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.
Typically, the Company ensures that it has sufficient cash on demand to meet expected operational expenses, including the servicing of financial obligations; this excludes the
potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters.
An analysis of changes in the gross carrying amount and the corresponding ECL allowances is, as follows:
At 31 December 2018
81
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
31 December 2018
In thousands of naira
Non-derivative financial liabilities
Secured bank loans 1,347,399 1,347,399 (475,553) (475,553) (396,294) - -
Unsecured intercompany loans 5,600,553 5,600,553 - - - (5,600,553) -
Trade and other payables 60,384,454 60,384,454 (60,384,454) - - - -
67,332,406 67,332,406 (60,860,007) (475,553) (396,294) (5,600,553) -
31 December 2017
In thousands of naira
Non-derivative financial liabilities
Secured bank loans 2,462,140 2,766,604 (697,550) (616,648) (1,452,406) - -
Unsecured intercompany loans 18,015,770 18,015,770 (8,740,002) (5,993,382) (1,094,129) (1,094,129) (1,094,129)
Trade and other payables 49,055,624 49,055,624 (49,055,624) - - - -
69,533,534 69,837,998 (58,493,176) (6,610,030) (2,546,535) (1,094,129) (1,094,129)
It is not expected that the cash flows included in the maturity analysis could occur significantly earlier, or at significantly different amounts.
More than 5 years
Carrying amountContractual cash
flows6 months or less 6-12 months 1-2 years 2-5years More than 5 years
Carrying amountContractual cash
flows6 months or less 6-12 months 1-2 years 2-5years
The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements.
82
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
(IV) Market risk
i Currency risk
Financial instruments analysed by currency is as follows
• USD
• Euro Euro
• GBP Pounds Sterling
• ZAR South African Rand
• SGD Singaporean Dollar
• XOF Ivorian CFA
• CHF Swiss Franc
• JPY Japanese Yen
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Company’s income or the value of its
holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising
the return.
The Company manages market risks by keeping costs low to keep prices within profitable range, foreign exchange risks are managed by maintaining foreign denominated
bank accounts and keeping Letters of Credit (LC) facility lines with the Company’s bankers. Also interest rates are benchmarked to NIBOR (for local loans) and LIBOR (for
foreign denominated loans) with a large margin thereof at fixed rates while not foreclosing the possibility of taking interest rate hedge products should there be need to do
so. The Company is not exposed to any equity risk.
The Company is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the functional currency of Company, primarily
the Naira. The currencies in which these transactions primarily are denominated are Euro, US Dollars (USD), Pounds Sterling (GBP) and Swiss Francs (CHF). The currency risk
is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to the changes in foreign exchange rates.
The Company monitors the movement in currency rates on an ongoing basis to mitigate the risk that the movements in the exchange rates may adversely affect the
Company’s income or value of their holdings of financial instruments.
The Company manages the transactional exposures in accordance with specific principles which are in line with the Company's business needs. These include balancing the
sources of financial instruments. Exchange difference recorded in the statement of comprehensive income represented a loss of N96.1 million ( 2017: N11.2 billion). They
are allocated to the appropriate headings of expenses by function.
83
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Amounts in thousands NGN Euro USD CHF XOF ZAR SGD GBP GHS XAF
Unsecured intercompany loans - - (15,200) - - - - - - -
Amount due from related parties 80,485 2,960 3,269 16 - -
Amount due to related parties (93,842) (14,130) (14,103) (1,544) - - (6) - (20,466)
Trade payables (22,071,658) (13,604) (985) (1,133) (1,285,315) - - (88) - -
Net exposure (22,085,014) (24,774) (27,020) (2,677) (1,285,315) - - (77) - (20,466)
Amounts in thousands NGN Euro USD CHF XOF ZAR SGD GBP GHS JPY
Unsecured intercompany loans (2,462,141) - (50,044) - - - - - - -
Amount due from related parties 1,067,905 1,140 2,001 29 - - - - - -
Amount due to related parties - (11,605) (4,935) (4,157) - (1,759) (887) (515) (0) (20,466)
Trade payables (12,764,265) (2,498) - (211) (368,910) (7) (101)
Net exposure (14,158,501) (12,963) (52,978) (4,339) (368,910) (1,766) (887) (616) (0) (20,466)
The significant exchange rates applied during the year is as follows:
2018 2017 2018 2017
Euro 426.61 374.01 350.76 430.33
United states dollar (USD) 361.92 331.00 306.50 360.00
31 December 2017
Average rate Year end spot rate
31 December 2018
84
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Sensitivity analysis
Effect in thousands of Naira Equity Profit or loss
31 December. 2018
Euro (10 percent strengthening) (868,971) (868,971)
USD (10 percent strengthening) (828,158) (828,158)
31 December. 2017
Euro (10 percent strengthening) 557,849 557,849
USD (10 percent strengthening) 1,907,223 1,907,223
ii Interest rate risk
In thousands of Naira 2018 2017
Fixed rate instruments
Financial assets 4,863,924 3,555,444
Financial liabilities 1,347,399 2,462,140
6,211,323 6,017,584
Variable rate instruments
Financial assets - -
Financial liabilities 5,600,553 18,015,770
5,600,553 18,015,770
Fair value sensitivity analysis for fixed rate instruments.
At the reporting date the interest rate profile of the Company’s interest-bearing financial instruments
was:
A strengthening of the Naira, as indicated below, against the Euro and US Dollar at 31 December would
have increased (decreased) equity and profit or loss by the amounts shown below. This analysis is based
on foreign currency exchange rate variances that the Company considered to be reasonably possible at
the end of the reporting period. The analysis assumes that all other variables, in particular interest rates,
remain constant. The analysis is performed for USD and Euro being the most significant currency risk the
Company is exposed to and on the same basis for 2018, albeit that the reasonably possible foreign
exchange rate variances were different, as indicated below.
The Company adopts a policy of ensuring that a significant element of its exposure to changes in interest
rates on borrowings is on a fixed rate basis. This is achieved by entering into loan arrangements with
mixed interest rate sources. Variable interest rates are marked against the ruling LIBOR rates to reduce
the risk arising from interest rates.
Interest rate risk comprises interest price risk that results from borrowings at fixed rates and the interest
cash flow risk that results from borrowings at variable rates. The Board of Directors is responsible for
setting the overall duration and interest management targets. The Company's objective is to manage its
interest rate exposure through careful borrowing profiling and use of heterogeneous borrowing sources.
Carrying Amount
85
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Cash flow sensitivity analysis for variable rate instruments
100 BP 100 BP 100 BP 100 BP
increase decrease increase decrease
31 December 2018
Variable rate instruments (56,006) 56,006 (56,006) 56,006
Cash flow sensitivity (net) (56,006) 56,006 (56,006) 56,006
31 December 2017
Variable rate instruments (180,157) 180,157 (180,157) 180,157
Cash flow sensitivity (net) (180,157) 180,157 (180,157) 180,157
(V) Operational risk
•
• requirements for the reconciliations and monitoring of transactions
• compliance with regulatory and other legal requirements
• documentation of controls and procedures
•
•
• development of contingency plans
• training and professional development
• ethical and business standards
• risk mitigation, including insurance when it is effective
The Company’s objective is to manage operational risk so as to balance the avoidance of financial losses
and damage to the Company’s reputation with overall cost effectiveness and to avoid control procedures
that restrict initiative and creativity.
The primary responsibility for the development and implementation of controls to address operational
risks is assigned to senior management within each business unit. This responsibility is supported by the
development of overall Company standards for the management of operational risk in the following
areas:
requirements for the periodic assessment of operational risks faced, and the adequacy of controls
and procedures to address the risks identified
requirements for the reporting of operational losses and proposed remediation action
A change of 100 basis points in interest rates at the reporting date would have increased (decreased)
equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in
particular foreign currency rates, remain constant. The analysis is performed on the same basis for 2018.
Profit or loss Equity
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with
the Company’s processes, personnel, technology and infrastructure, and from external factors other than
credit, market and liquidity risks such as those arising from legal and regulatory requirements and
generally accepted standards of corporate behavior. Operational risks arise from all of the Company’s
operations.
The Company does not account for any fixed rate financial assets and liabilities at fair value through profit
or loss. Therefore a change in interest rates at the reporting date would not affect profit or loss.
requirements for the appropriate segregation of duties, including the authorisation of transactions
86
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
(b) Determination of fair values
(I) Trade and other receivables
(II) Non-derivative financial liabilities
(III) Share-based payment transactions
Fair values
Fair values versus carrying amounts
Assets measured at fair value
Financial assets measured at amortized cost
In thousands of naira
Fair value Fair value
Long term receivables 2,237,105 2,237,105 1,921,232 1,921,232
Loans and receivables 20,125,760 20,125,760 14,903,021 14,903,021
Cash Balance 15,762,036 15,762,036 15,138,854 15,138,854
38,124,901 38,124,901 31,963,107 31,963,107
Carrying amount
Carrying
amount
Compliance with the Company’s standards is supported by a programme of periodic reviews undertaken
by Internal Audit. The results of Internal Audit reviews are discussed with the management of the
business unit to which they relate, with summaries submitted to the Audit Committee and senior
management of the Company.
A number of the Company’s accounting policies and disclosures require the determination of fair value,
for both financial and non-financial assets and liabilities. Fair values have been determined for
measurement and/or disclosure purposes based on the following methods.
When applicable, further information about the assumptions made in determining fair values is disclosed
in the notes specific to that asset or liability.
The fair value of trade and other receivables is estimated as the present value of future cash flows,
discounted at the market rate of interest at the measurement date. Fair value for short-term receivables
with no stated interest rate are measured at the original invoice amount if the effect of discounting is
immaterial. Fair value is determined at initial recognition and for disclosure purposes, at each annual
reporting date.
Fair value, which is determined for disclosure purposes, is calculated based on the present value of future
principal and interest cash flows, discounted at the market rate of interest at the reporting date.
The fair value of the restricted stock unit plan is measured based on market prices of the awarded shares
on the grant date adjusted for the present value of dividends that participants are not entitled to receive
during the restricted period of 3 years.
The fair values of financial assets and liabilities, together with the carrying amounts shown in the
statement of financial position, are as follows:
There are no financial assets and liabilities that are carried at fair value. As such the fair value hierarchy
has not been disclosed.
2018 2017
87
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
In thousands of naira
Fair value Fair value
Financial liabilities measured at amortized cost
Unsecured intercompany loan 5,600,553 5,600,553 18,015,770 18,015,770
Secured bank loans 1,347,399 1,347,399 2,462,140 2,462,140
Bank overdraft 1,393,678 1,393,678 3,714,087 3,714,087
Trade and other payables 60,384,454 60,384,454 49,055,624 49,055,624
68,726,085 68,726,085 73,247,621 73,247,621
(c) Capital management
The Company’s debt to capital ratio at the end of the reporting period was as follows:
In thousands of naira 2018 2017
Total liabilities 112,113,936 101,925,951
Cash Balance (15,762,036) (15,138,854)
Net Debt 96,351,900 86,787,097
Total Equity 50,220,486 44,878,177 Debt to capital ratio at December 31 1.92 1.93
32 Operating leases
The warehouse and head office leases were entered into at different times as leases of land and
buildings. Since the land title does not pass, the rent paid to the landlord of the building is increased to
market rent at regular intervals, and the Company does not participate in the residual value of the
building, it was determined that substantially all the risks and rewards of the building are with the
landlord. As such, the Company determined that the leases are operating leases.
The fair value of the financial assets and liabilities are determined based on level 3 inputs of the fair value
hierarchy. At year end, the carrying amounts of loans and receivables and trade and other payables
reasonable estimated their fair values.
The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market
confidence and to sustain future development of the business. The Board of Directors monitors the return
on capital, which the Company defines as result from operating activities divided by total shareholders’
equity. The Board of Directors also monitors the level of dividends to ordinary shareholders.
The Board seeks to maintain a balance between the higher returns that might be possible with higher
levels of borrowings and the advantages and security afforded by a sound capital position.
There were no changes in the Company’s approach to capital management during the year. The Company
is not subject to externally imposed capital requirements.
The Company leases a number of land, offices, warehouse and accommodation facilities under operating
leases. The leases typically run for a period of 2 to 58 years, with an option to renew the lease after that
date. Lease payments are usually increased at the expiration of the lease term and consequent renewal
to reflect market rentals. Advance payments outstanding in respect of these leases at year end amounts
to N4,497 million (2017: N524 million)
During the year ended 31 December 2018 an amount of N500 million (2017: N269 million) was
recognized as an expense in profit or loss in respect of operating leases. Contingent rent recognized as an
expense amounted to Nil (2017: Nil).
2018 2017
Carrying amount
Carrying
amount
88
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
33 Contingencies
(a) Pending litigation and claims
(b) Financial commitments
34 Related parties
(a) Parent and ultimate controlling party
(b) Transactions with related parties
General License Fee Agreement
Shared Service Agreement
Sourcing of Raw Materials and Finished Products
Agency and Administration Service Agreement
The Company is engaged in lawsuits that have arisen in the normal course of business. The contingent liabilities in respect
of these pending litigations amounted to N514 million as at 31 December 2018 (2017: N2,798 million). While the
contingent assets in respect of pending litigations amounted to N584.3 million for the year then ended (2017:N565.9
million), in the opinion of the directors, and based on independent legal advice, the Company is not expected to suffer any
material loss arising from these claims. Thus no provision has been made in these financial statements.
In the normal course of business, the company uses letters of credit to import materials. The total value of open letters of
credit as at 31 December was N354.8 million (2017: N846.5 million). The Company also obtained a bank guarantee with a
value of N423.1 million (2017: N434.9 million).
As at the year ended 31 December 2018, Nestlé Switzerland (Nestlé S.A.), the ultimate holding Company owned 66.18%
(2017: 66.18%) of the issued share capital of Nestlé Nigeria Plc.
Nestlé Nigeria Plc has a general license fee agreement with Societe Des Produits Nestlé S.A., for the provision of technical
and other support services. The agreement was made with the approval of the National Office for Technology Acquisition
and Promotion and payments are made to Societe Des Produits Nestlé S.A. The agreement was renewed in 2018 for a
period of three (3) years, with effect from January 1, 2018. The technical fee recognised in the current year was N9.935
billion (2017: N9.204 billion). See Note 11a and 11b.
Nestlé Nigeria Plc also has an agreement with Nestlé Central and West Africa Limited (Nestlé CWA) whereby Nestlé CWA
provides and charges for certain common shared services to the Company at a service cost. Service cost as defined by the
terms of the contract means: all direct and indirect expenses charges, overheads and administration costs reasonably
incurred by Nestlé CWA from time to time during the term of the agreement in providing the shared services, plus a 4% on
the reimbursable cost of Nestlé Business Services and Operational and Commercial Services as allocated among the
various countries in the region. The services provided by Nestlé CWA includes transactionary services as well as planning
and management functions.
Additionally, the Company sources part of its raw materials and finished products through companies related to its
ultimate holding company, Nestlé S.A., incorporated in Switzerland.
Nestlé Nigeria Plc has an agreement with Cereal Partners Nigeria Limited (CPNL) for the importation, warehousing and
distribution of breakfast cereal. Nestlé Nigeria Plc provides these functions to CPNL and obtains re-imbursement for all
costs incurred in respect of these functions.
89
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
(c) Transactions with key management personnel
Loan to key management personnel
(d) Key management personnel compensation
Key management personnel compensation comprised:
In thousands of naira 2018 2017
Short-term employee benefits 135,841 98,195
Contribution to compulsory pension fund scheme 8,567 9,890
Defined contribution gratuity scheme 9,456 10,732
Other long term benefit 17,934 -
Share based payments 72,774 58,076
244,572 176,893
(e) Other related party transactions
(i) Intercompany payables
In thousands of naira
Related Party 2018 2017 2018 2017
Nestlé Ghana Limited Finished goods 2,001,528 1,925,623 811,516 61,122
PPE/ Services 5,964,140 5,414,430 - -
Nestlé Netherlands Finished goods - 1,299,036 1,905,122 2,251,984
Nestlé France Limited Finished goods 698,045 2,120,310 980,819 262,709
Societe Des Produits Nestlé S.A Services 8,626,137 7,965,512 3,515,539 3,145,496
Services 6,596,605 5,266,051 1,694,434 1,392,497
Wyeth Nutritional Singapore Finished Goods 1,785,706 1,834,378 1,305,650 -
Others 7,967,831 5,752,356 1,584,782 1,932,404
33,639,993 31,577,696 11,797,862 9,046,212
Nestlé World Trade
Corporation Limited
Nestlé Central and West Africa
Amount due from other related companies represents balances due on current accounts maintained with companies
within the Nestlé Group for the export of finished goods and provision of services. Prior year amounts have been
regrouped to align with current year presentation. This does not have any impact on the results. The aggregate value of
transactions and outstanding balances relating to these entities were as follows;
Nature of
transaction
Transaction value Year ended 31
December
Balance outstanding as at 31
December
New loan of N10.4 million was issued to key management personnel during the year ended 31 December 2018 (2017:
N51.174 million) which include interest and non-interest bearing facilities and the loans are repayable in full over the
agreed repayment period which could be short or long term. As at 31 December 2018, the balance outstanding was
N17.147 million(2017: N39.754 million) and is included in trade and other receivables. (See note 22)
In addition to their salaries, the Company also provides non-cash benefits to directors and executive officers, and
contributes to a post-employment defined contribution plan on their behalf. In accordance with the terms of the plan,
directors and executive officers are entitled access to the fund when they retire.
Executive officers also participate in the Company’s long service awards programme. This programme awards a certain
sum of cash benefit which accrues to the recipient on graduated periods of uninterrupted service.
Amount due to other related companies represents balances due on current accounts maintained with companies in the
Nestlé Group for the importation of Property, plant and equipment (PPE), raw materials, finished products and services.
The aggregate value of transactions and outstanding balances relating to these entities were as follows;
90
Notes to the financial statements
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
(ii) Intercompany receivables
In thousands of naira
Related Party 2018 2017 2018 2017
Nestle Burkina Finished goods and Services 1,729,361 152,871 1,354,744 143,785
Nestlé Togo Finished goods and Services 66,463 3,077 - -
Nestlé Ghana Finished goods and Services 1,686,124 2,093,226 136,881 582,189
Nestlé Niger Finished goods and Services 1,481,007 297,341 110,781 116,896
Nestlé Senegal Finished goods and Services 11,221 8,334 - -
Nestlé Cameroun Finished goods and Services 9,558 12,081 - 38,578
Nestle Middle East Services - - 27,848 133,840
CP Nigeria Services 263,865 240,633 617,814 894,990
Others Finished goods and Services 208,809 1,115,201 285,631 858,721
5,456,408 3,922,764 2,533,699 2,768,999
(iii) Nestlé Nigeria Trust (CPFA) Limited
35 Events after the reporting date
There are no significant subsequent events which could have had a material effect on the state of affairs of the Company
as at 31 December 2018 that has not been adequately provided for or disclosed in the financial statements.
Nature of transaction
Transaction value Year ended 31
December
Balance outstanding as at 31
December
All outstanding balances with these related parties are to be settled in cash within six months of the reporting date. None
of these balances are secured nor interest bearing.
Nestlé Nigeria Trust (CPFA) Limited (‘NNTL’) previously called Nestlé Nigeria Provident Fund Limited, was incorporated by
the Company and is a duly registered Closed Pension Fund Administrator whose sole activity is the administration of the
pension and defined contribution gratuity scheme for both employees and former employees of Nestlé Nigeria Plc.
Nestlé Nigeria Trust (CPFA) Limited is an unconsolidated structured entity licensed by the National Pension Commission
(PENCOM) to conduct the business of a closed pension fund administrator. The activities of Nestlé Nigeria Trust (CPFA)
Limited are regulated by the National Pension Commission (PENCOM) rather than by voting rights and the funds are
managed in accordance with the PENCOM guidelines. The benefits arising from the activities of Nestlé Nigeria Trust
(CPFA) Limited accrue principally to members of the provident, pension and defined contribution gratuity schemes and
the company has no exposures to variable returns arising from its involvement.
The Company's residual interest in Nestlé Nigeria Trust (CPFA) Limited is immaterial. The funds and assets of the
provident, pension are held by an independent licensed pension fund custodian in line with the Pension Reform Act, 2004.
The company supports the sourcing of resources to Nestlé Nigeria Trust (CPFA) Limited and intends to continue to provide
support into the future.
91
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Other National Disclosures
92
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Value Added Statement
In thousands of naira
2018 % 2017 %
Revenue 266,274,621 244,151,411
Brought in materials and services
- Local (93,662,012) (92,341,151)
- Imported (77,110,471) (66,867,731)
95,502,138 84,942,529
Finance Income 1,716,889 6,239,371
Value Added 97,219,027 100 91,181,900 100
Distribution of Value Added:
To Employees:
- Employees as wages and salaries
and end of service benefits 23,506,644 24 22,758,609 25
To Providers of Finance:
- Finance Costs 2,606,774 3 15,109,062 17
- Company tax 15,726,711 16 7,886,419 9
Retained in the business:
- Depreciation of tangible assets 6,906,287 7 6,485,547 7
- Deferred tax 1,016,109 1 5,218,533 5.72
- Impairment loss on tangible assets 4,448,476 5
- Profit transfered to reserves 43,008,026 44 33,723,730 37
97,219,027 100 91,181,900 100
93
Nestlé Nigeria Plc
Annual Report and Financial Statements -- 31 December 2018
Together with Directors' and Auditor's Reports
Financial Summary
In thousands of naira 2018 2017 2016 2015 2014
Funds Employed
Share Capital 396,328 396,328 396,328 396,328 396,328
Share Premium 32,262 32,262 32,262 32,262 32,262
Share based payment reserve 154,788 147,236 126,480 150,466 44,637
Retained Earnings 49,637,108 44,302,351 30,323,005 37,428,018 35,466,416
Shareholder's Fund 50,220,486 44,878,177 30,878,075 38,007,074 35,939,643
Current Liabilities 92,117,501 79,680,495 121,033,434 59,731,857 44,638,052
Non-current Liabilities 19,996,435 22,245,456 17,674,423 21,476,122 25,484,372
162,334,422 146,804,128 169,585,932 119,215,053 106,062,067
Asset Employed
Non Current assets 79,600,105 74,299,175 71,849,777 70,500,367 68,672,737
Current assets 82,734,317 72,504,953 97,736,155 48,714,686 37,389,330
162,334,422 146,804,128 169,585,932 119,215,053 106,062,067
In thousands of naira 2018 2017 2016 2015 2014
Revenue 266,274,621 244,151,411 181,910,977 151,271,526 143,328,982
Profit before income tax 59,750,846 46,828,682 21,548,408 29,322,477 24,445,978
Profit for the year 43,008,026 33,723,730 7,924,968 23,736,777 22,235,640
- - - -
Declared dividend* 37,651,172 19,816,406 15,060,469 21,798,049 26,950,313
Per 50k share data:
Basic earnings per share 54.26 42.55 10.00 29.95 N28.05
Diluted earnings per share 54.26 42.55 10.00 29.95 N28.05
Declared dividend per share 47.50 25.00 19.00 27.50 N34.00
Net assets per share 63.36 56.62 38.96 47.95 N45.34
Other comprehensive
income, net of tax
* Declared dividend represents the interim dividend declared during the year (N20.00) and final dividend proposed
for the preceeding year but declared during the current year.
The financial information presented above reflects historical summaries based on International Financial Reporting
Standards.
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